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Grain Stol'oge, Processing aud Marketing Report No. 94

January-February 1984

THE PADDY ~STORAGE

AND PROCESSING PROJECT AND FUTURE, POSTHARVEST DEVELOPMENT IN SRI LANKA

FOOD l;.r FEED GRAIN INSTITUTE

MANHATTAN, KANSAS 66506

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REPORT SUMMARY

Title of Report/Publication: The Paddy storage and Processing Project and Future Postharvest Development in Sri Lanka

Authors: Roe Borsdorf and Donald Anderson

Period of Report/Publication: January-February 1984

Project Title: Improvement of Postharvest Grain Systems

Contract Number: AID/DSAN-CA-0256

Contractor: Food and Feed Grain Institute, Kansas State University, Manhattan, Kansas

SUMMARY STATEMENT

This report encompanses a review of the results of the Paddy Storage and Mar­keting Project, as well as possible areas of concentration for future posthar­vest development activities in Sri Lanka. These areas include utilization of paddy storage and milling complexes, producer price stabilization, buffer stock management, quality standards postharvest technology, and product development technology. The report also describes the institutional arrangements and development support necessary to begin postharvest development activities in speci fie areas.

THE PADDY STORAGE AND PROCESSING PROJECT AND FUTURE POSTHARVEST DEVELOPMENT IN SRI LANKA

Prepared by

Roe Borsdorf and

Donald Anderson

for the

AGENCY FOR INTERNATIONAL DEVELOPMENT UNITED STATES DEPARTMENT OF STATE

AID/DSAN-CA-0256 Improvement of Postharvest Grain Systems

at the

FOOD AND FEED GRAIN INSTITUTE Kansas State University Manhattan, Kansas 66506

Charles W. Deyoe, Director

( I

I )

PREFACE

This report encompasses the statement of work as attached in Appendix A. The statement of work concentrates on the development of po~tharvc=t. practices in rice and other field grain crops. Because of the diver~ity of field ~rops being grown, the definition of other field grain crops has been expanded to include not only coarse gr ains (corn, millet, so rghum), but also pulses (blackgr am, greengram, cowpeas) and oilseeos (sesame, peanuts, soybeans). For the purposes of this report, this grouo of crops will be referred to as coarse grains. The study team accepts the &ule responsibility for the contents of this report. However, the parameters of the stuey team's work were dictated by the the statement of work as drafted by USAID/Colombo.

iii

• •

TABLE OF CONTENTS

Section

EXECUTIVE SUMMARY . . . . . . . . . . . . · . . . . . . vii

I THE PADDY STORAGE AND PROCESSING PROJECT • • • • • 1 Project Background • • • • • • • • • • • 1 Project Objectives • • • • • • • • • • • • • • • • • • • 2· .Expected Project Results • • • • • • • • • 3 GSL Policy Changes • • • • • • • • • • • • · 4 Discussion ~f Draft GSL/USAID Final Evaluation Report

. .' . 5

II THE ECONOMIC AND MARKETING ENVIRONMENT • . . . . . 7 The Rice Sector • • • • • • • • • 7 · . .The Coarse Grain Sector • • • • • • 8

III THE STATE Of POSTHARVEST PRACTICES • 11 . .Losses • • • • • • . . . . · 11

Quality Standards 12· . . IV THE STATE OF PROCESSING AND PRODUCT DEVELOPMENT TECHNOLOGY • 15

Available Technology • • • • • • • • • • • • • • • • • • 15 Need for Technological and Related Improvements • • • 16

V FUTURE POSTHARVEST DEVELOPMENT • • • • • • • • • • 19 Utilizing the Paddy Storage and Milling Complexes 19 Producer Price Stabilization ••••• 21

· . .Buffer Stock Management ••••••••• 24 Quality Standards •••• • • •• • • 25· . . Postharvest Technology • • • • 27 Product Development Technology • • • • • • • • •• · . . . . 28 Private Sector Involvement . . · . . . . . . 29

VI INSTITUTIONAL ARRANGEMENTS • • •• 33 Relationships Between Institutions and Activities 33 Price Stabilization and Buffer Stocks · . . . 34

· .Product Development Technology • 39 Postharvest Technology • • • • . . . 37

VII DEVELOPMENT SUPPORT ••••• •••• 41 · .

Price Stabilization and Buffer Stocks • • • • • • 42 Utilization of the Milling Complexes • 41

Postharvest Technology • • • • • 43 Product Development Technology • · . . 43 The Need for Marketing Studies • 44

Appendix A - Statement of Work • • • • • • • • • • • • • • • • 470

the Marketing of Rice and Coarse Grains • • • • Appendix B - Review of GSL Agricultural Policies Since 1977 Affecting

51 Appendix C - Study Team Obsarvations of PMB Milling Complexes •

Appendix F References • • • • • • • • . . . . . . . . . . . · 89

55 Appendix D - Marketing Study Proposal, Paddy Marketing Board 61 Appendix E - Data Tables • • • • •••••• 67

- .

EXECUTIVE SUMMARY

The economic and marketing environments of the rice and coarse grain1 sectors in Sri Lanka have changed dramatically over the past five years. At present, a unique set of circumstances exists in these sectors. They are (1) Government of Sri Lanka (GSL) policies which have to a large extent removed trade restric­tions and thereby allowed the private sector to play an increased role in agri ­cultural trade, (2) the achievement or near achievement of self-sufficiency in rice, (3) the possibility of future surpluses of paddy and rice, (4) the recent increases in the production of coarse grains, and (5) the additional emphasis being placed on increasing the production of other food crops.

These conditions have created a new set of opportunities and requirements for development actions within the postharvest portion of the rice and coarse grain sectors. There are six major areas in which there is an evident need for change.

The Paddy Storage and Processing Project Milling Complexes

Utilizing the milling complexes constructed under the Paddy Storage and Pro­cessing Project involves a situation with several facets. Before any decision can be made as to how the milling complexes should be used, the complexes must attain full operational and economic utilization status.

Given the evident operational constraints that currently exist in the compJexes, as well as the lack of certain management tools, a two-stage effort will be necessary to bring the complexes to full utilization.

The series of activities involved in the first stage will bring the complexes to full operational status. These activities are:

1. Repair construction defects, including minor equipment installation, at all complexes.

2. Undertake a complete process audit on the total facility at each complex and correct any deficiencies uncovered.

3. Develop a rcutine maintenance program, including a repair parts stocking procedure, for each complex.

4. Develop a training program for maintenance, train personnel, and place a maintenance crew in each complex.

5. Develop and install a grain accounting system in each complex.

6. Develop and implement a training program to improve the operational skills of equipment operators.

7. Assure that laboratory technicians are trained.

1Coarse grain is used in this report as the descriptive term for coarse grains, pulses, and oilseeds.

Previous Pag. !icnJ.k vii

The second stage of 8ctivities will bring the facilities to a sound economic level of utilization. This can be accomplished only after tile complexes are brought to full operational readiness by the above activities. The steps re­quired in this stage are the following:

1. Develop and implement a cost accounting system which, in conjunction with the grain accounting system, can determine operational costs by function. This will allow each complex to operate as a profit center.

2. Define the management structur~ of the complex and establish responsibil ­ities for all actions.

If the GSL is to achieve operational and economic utilization of the milling complexes, followinr assistance will be required.

A bulk storage and milling operations consultant must be employed to assist personnel of the Paddy Marketing Board (PMB) assigned to the milling complex project. This specialist will guide and assist these personnel in performing a process audit and in making the required alterations to bring the complexes to full operational performance.

At the same time~ a maintenance consultant must be employed to develop a main­tenance program, develop a training program, and implement the training program on a complex-by-complex basis.

Midway through the time period covered by these activjties, a grain accounting system needs to be installed at every complex. It may be that the bulk storage and milling operations consultant can undertake this requirement of system installation and personnel training. If not, then a third consultant will have to be employed for this purpose.

Finally, after all operational deficiencies are corrected, a cost accountant consultant familiar with grain accounting systems will be hired to aRsist the PMB in installing a cost accounting system for each complex. This consultant will also be responsible for conducting any training necessary for personnel.

Because of the changes in the marketing and econo;'llc environment, the manner in which the milling complexes will be utilized is extremely important. Before any decision is made as to what their purpose will be or who will operate them, the complexes must be capable of becoming economicaily viable operations.

Producer Price Stabilization and Buffer Stock Management

In the rice sector in Sri Lanka two majo~ . conditions exist at this period in time: (1) the great possibility of future rice surpluses and (2) the currently limited economic crop alternatives to paddy production. Because of these con­ditions, a producer price stabilization and buffer stock management program needs to be initiated. The goals of such a program would be to (1) support paddy prices at a rational economic level, (2) assist in encouraging improved paddy quality, (3) support coarse grain prices at rational economic levels that are coordinated with production improvement programs, and (4) restrict poten­tially large future paddy surpluses by rational price actions which allow the gradual transition by producers to other economic alternative crops.

viii

Achieving these goals will require (1) an agency willing to purchase all price­supported crops offered to it, (2) quality product maintenance, resale, and carry-over liquidation through export or buffer stock actions, (3) close coor­dination with the agency that performs price analysis and makes recommendations for setting rational pric~s, (4) development of standards and grades for paddy applied along with appropriate discounts for quality, moisture, and dockage, (5) development and implementation of a well-defined sec of quality specifica­cations for coarse grains, (6) ability to continue selling the commodities pur­chased to private sector marketers and processors, (7) maintenance of either food security or surplus buffer stocks, and (8) development of an export as­sistance capability to aid the private sector. in exporting rice and coarse grains.

The PMB is considered by many to be operating in the above role. In a limited way it does. However, many differences are evident between the PMB's current operations and the required act ions of a producer price stabi lization and buffer stock management agency. The PMB's objectives give it the status of a state-owned operational en:.ity which competes directly with private sector. Its milling operations also compete with the private sector. Other factors, such as price analysis and export assistance, are lacking.

In order to create a producer price stabilization and buffer stock management aqency a new institutional model will be necessary. Different alternatives concerning this new institutional model must be considered. In no event does the study team recommend that a new institution dedicated solely to producer price stabilization be created in addition to current institutions. The PMB contains some of the elemental characteristics required of such a new agency. It has purchasing experience, warehouse facilities, and some experience in mar­keting. The PMB could therefore be the nucleus around which a new institu­tional model could be constructed.

The possible alternatives to be considered are: (1) simply assigning this role to the PMB by changing its objectives and (2) creating a new institution by merging the PMB and the Food Commissioner (FC) into one unit. Regardless of the alternative chased, the GSL needs to address the issue of the role that the PMB mills are to play in the rice milling sector. The alternatives to be considered are (1) leave the six new milling complexes with the newly-created agency, (2) leave all the mills with the newly-created agency, 0) create a GSL milling corporation responsible for the operation of the mills, (4) create a public stock corporation responsible for the operation of the six complexes, and (5) lease the mills to the private sector.

To assist policymakers in reaching a decision on required institutional actions and improvements, a series of "concept" papers should be prOduced presenting a detailed description of different alternative courses of action and their ex­pected results. These papeLs should contain recommendations regarding (1) al­ternative organizational structures, (2) methods of establishing and administer­ing pricing policies, 0) guidelines for grain buffer stock strategies, (4) organizational alternatives for purchasing, storage, and disposal of grain stocks, and (5) facilities and personnel needed to operate the programs. A task force will prepare the concept papers. This task force will be composed of members with experience in agricultural policy, rice and coarse grain mar­keting policy formulation, marketing research, price analysis, supply and de­mand analysis, international trade in rice and coarse grains, quality mainte­nance storage techniques, and inventory management.

ix

Quality Standards

Current production and marketing conditions in the rice sector create the need to introduce a Hound system of standards and grades. A standards and grades system has two basic purposes: (1) to ensure fair treatment for both producer and consumer in relationship to the price of the commodity or product and (2) to encourage producers to increase or maintain their production of better grades of commodities, and to discourage producers from producing low quality grades.

standards and grades cannot be arbitrarily designed and imposed. They must be tailored to fit the marketing system as it exists and to assist in modi fying practices within the system. The five major considerations involved in the development of standards and grades for rice are (1) normal paddy purchasing practices currently used in the industry, (2) quality of equipment and oper­ating skills in th,} industry, (3) consumer preference as to di fferent rice characteristics, (4,1 export market requirements, and (5) characteristics of rice produced in Sri Lanka as compared to other countries. There is also a need to establish a set of well-defined specifications to describe the impor­tant quality charact~ristics of the coarse grain crops.

The development and implementation of standards and grades for paddy and rice and well-defined quality specifications for coarse grains will require a strong collaborative effort on the part of the Rice Processing Research and Develop­ment Center (RPRDC), the PMB, the Marketing Research Division (MRD), and the private sector.

Postharvest Technology

Postharvest technology is defined as equipment, innovations, and techniques which will improve all segments of a system from the harvest of a product to its sale to the consumer. The magnitude of postharvest losses in rice and coarse grains is unknown in Sri Lanka. To improve the efficiency of both the rice and coarse grain sectors a strong effort in postharvest loss assessment is necessary. Unless this is undertaken, any effort to improve efficiency witnin either sector will be wasted because there will be no basis on which to set priorities or on which to calculate ~he benefits of any improvement efforts.

Research to determine quantity and quality losses must be directed at (1) har­vesting and threshing procedures, (2) farm and commercial storage and handling practices, (3) processing, and (4) other segments of the marketing system such as transport.

Applied research must be intensified to develop innovations and techniques ap­plicable to current operating systems. The areas of applied research should be (1) harvesting, (2) threshing, 0) quality standards, (4) processing, (5) storage, and (6) transport.

Training and consultancy activities need to be greatly expanded so 8S to dis­seminate findings to all sectors of the industry, especially to producers, marketers, and processors within the private sector.

x

The RPRDC is the logical choice to pursue such activities, since it was orIgI­nally developed as an applied research, training, and consultancy organzation. It contains the essential quali fications for addressing the needs of the pr i­vate sector.

The current institutional arrangement of the RPRDC is not conducive to carrying out the proposed Sta ... es of activities in postharvest technology and private sector development. The RPRDC should not remain as an appendage to the state­owned PMB. Three basic alternatives exist for the institutional placement of the RPRDC: (1) locate the RPRDC within the jurisdiction of the Producer Price StabilizAtion Agency (PPSA), (2) create a Postharvest Institute under the Min­istry of Agricultural Development and Research, which would contain the RPRDC, (3) locate the RPRDC within the Department of Agriculture (DDA). An additional factor to bcl considered in the choice of alternatives is the relationship de­sired between t~9 RPRDC and the Food Technology Research Unit (FTRU).

It is important that a policy decision be made to change the RPRDC's institu­tional alignment. Once this is accomplished the RPRDC should be evaluated to determine its strengths and needs. This assessment should review the RPRDC's objectives, determine the needs of the various segments of the rice and coarse grain sectors, carry out research project identification and research project planning, establish priorities for research projects and related activities, and evaluate outreach methods. The result would be l3 set of recommended ac­t ions, listed by priority, for achieving a set of development objectives. These recommendations would also state requirements for staffing, equipment, other material resources, and operational funding.

Product Development Technology

One of the factors which assists successful marketing activit.ies within any sector of an agricultural economy is the development of new and innovative commodity utilization techniques.

There are three areas of research in food technology in Sri Lanka that need to be expanded: (1) new food uses for existing crops in order to provide new food products that are nutritious and acceptable to consumers, (2) basic re­search on the functional properties and quality characteristics of grain crops, and (3) development of feasible commercial processing systems to process new food products. These three areas should be combined into one research unit because their functions are interrelated.

New product development research should be expected to maintain close contacts ~/ith private sector processing firms. This may take the form of individual contact as well as periodic seminars for the technical personnel of such firms.

The study team proposes the creation of the FTRU by combining and reinforcing the two existing research units of the DOA. This unit would be composed of six sections: (1) cereal grain utilization, (2) oilseed utilization, (3) legume and pulse crop utilization, (4) coarse grain utilization, (5) human nutrition and food use, and (6) food process engineering.

A group of techicians with experience in food technology, new product develop­ment, and foods systems research should be assembled to study and report on the feasibility of the development of a food technology organization.

xi

This study should include (1) appropriate organizational structure, (2) re­quirements for basic and applied research on processing and utilizing rice and coarse grains in domestic and export food systems, (3) requirements for nutritional and consumer acceptance evaluation and limited test marketing of new products, and (4) requirements for designing appropriate processing systems to market new food products developed through research.

Private Sector Involvement

Each of the preceding five areas involves the need for cooperation between GSL institutions and the private sector. The private sector, while it is the re­cipient of many of the actions suggested, must interact with GSL institutions so that the actions are not arbitrary and will be effective and efficient in the development of the overall system. In order to promote innovations in the private sector, the GSL institution responsible must develop and maintain com­munications with private industry.

There are specific items that are critical to the encouragement of private sector initiatives in postharvest development. The following activities should be investigated to determine their feasibility, and incorporated into the pro­posed studies. The study team believes the essential activity areas are (1) representatives of the private sector chosen to participate in each of the study groups proposed in Section VI I, (2) extensive workshops in which the private sector and GSL institutions will discuss and establish a system of standards and grades for paddy and rice and quality specifications for coarse grains, (3) private sector contract agreements for the holding and storage of buffer stocks, (4) the use of grants and other types of financial assistance to conduct research trials or projects in postharvest technology or product development technolugy, (5) the use of financial incentives to encourage the adoption of improved technologies, (6) the use of financial incentives or gI ants to construct pilot or test processing facilities for the purpose of evaluating new processing and handling systems, and (7) the use of incentives to encourage the private sector to develop its capacity for conducting research And development activities.

xii

SECTION I

THE PADDY STORAGE AND PROCESSING PROJECT

Rice is the staple diet of the population of Sri Lanka. Since the domestic production of rice in Sri Lanka is not sufficient to satisfy the demand, defi­cits have been met by limited domestic production of other cereal grains, im­portation of rice, and since World War II, importation of wheat and wheat flour. The importance of rice in the Sri Lankan diet has made it necessary for the Government of Sri Lanka (GSL) to give special attention to rice pro­curement, storage, and processing.

Project Background

When the project design was first proposed in 1976, the situation in Sri Lanka was far different from the current economic and political environment. At that time a rice rationing system dating from World War II provided the total population with a minimum supply of rice. This rice was distributed through a large network of cooperative societies, and was provided free of charge or at a subsidized price. The responsibility for administering this program lay with the Food Commissioner (FC) of the Ministry of Food and Cooperatives.

In order to supply rice to the rice rationing system, the government purchased domestically-produced rice directly from growers. This developed into a major commercial activity, and as a result the Paddy Marketing Board (PMB) was cre­ated in 1971 for the purpose of purchasing paddy, ensuring its proper storage, handling its conversion to polished rice, and fili::111y delivering the rice to the FC for inclusion in the rice rationing system. The objectives of the PMB were to (1) carryon the business of purchasing, selling, supplying, and dis­tributing paddy and rice and (2) carryon the business of hulling, milling, and processing of paddy and rice. 1 In addition, the PMB carried out the "Guaran­teed Price Scheme" (GPS) by offering to pay the stated GPS price for paddy. This price was fixed by the government to ensure the producers of a price which was not subject to market fluctuations and thereby encourage more production of paddy.

The private sector had not been actively encouraged to become a dominant force in rice marketing. Although the private sector was not restricted in paddy purchases,2 prices in the open market during and shortly after harvest were generally below the GPS price being offered by the PMB.3 During these periods the PMB purchased all paddy offered to it for sale. As a result, an average of 30 percent of annual production was purchased by the PMB in the early 1970's.4

1PMB Act No. 14 of 1971.

2Except for 1973-75, during which emergency regulations prohibited transport of paddy without a license.

3To a great degree, open market prices below the GPS price for paddy were a result of the rice rationing system and other explicit controls on the retail price of rice.

4This is an average of 60 percent of the marketable surplus, since approx­imately 50 percent of production is believed to be retained at the farm level.

1

Project Objectives

The PMB recognized that insufficient and outdated facilities, inefficient pro­cedures, and a disorganized private sector were adversely affecting the quality and quantity of the rice reaching the consumer. As the PMB began to upgrade its facilities in 1973, it reevaluated its expectea needs and designed a devel­opment program which it presented to the United States Agency for International Drvelopment (USAID) in 1975 with a request for financial assistance.

The resulting Paddy storage and Processing Project was designed to achieve two goals: (1) to increase the efficiency of current paddy procurement, storage, and processing in Sri Lanka and (2) La increase storage and milling capacity in Sri Lanka (44). The specific objectives necessary for achieving the project purposes were:

1. Upgrade paddy procurement procedures 2. Upgrade storage procedures 3. Increase the PMB's storage and milling capacities 4. Upgrade the PMB's institutional capacity 5. Promote private sector development

~

Objectives 1 and 2 were t~ be achieved by (1) the purchase, installation, and use of 3,000 moisture meters at cooperative purchase centers and PMB warehouses, (2) the purchase, installation, and use of 3,364 paddy cleaners at cooperative purchase centers and PMB warehouses, and (3) the purchase, installation, and use of 307 dryers at PMB warehouses. The mid-term project revision deleted the paddy cleaners and dryers from the project activity. The reason for this dele­tion was stated as follows.

"In the areas of cleaning and drying PMB waG more cautious in ventur­ing into an investment of the magnitude originally planned in view of the changing market situations that emerged following commence­ment of the project. With increasing private sector participation in the procurement, storage, and processing of paddy/rice in Sri Lanka the share of the trade PMB was required to handle was substan­tially reduced at least temporarily.

It was felt that to attempt to impose this new system on the rice industry under these circumstances would risk serious deterioration in PMB's economic position. Also the equipment needed for this ef­fort required provision of certain electrical capacity which PMB was unable to ensure.

Studies are now being conducted to determine whether cleaners and dryers are really warranted in Sri Lanka at this time and, if so, an effective system for their introduction. To assist in this ev~lua­tion, a pilot project has been placed on the drawing boards to be financed under the project if the proposed revision is approved. It is expected that the experience which comes from the pilot project can be IIsed to determine if drying and cleaning should be further pursued in Phase 11."(32)

Objective 3 was to be achieved by providing for (1) an additional 40,000 tons of storage capacity (eight s,OOO-ton warehouses) and (2) an additional 96,000 tons per year of parboiling and milling capacity (ten 2-ton per hour mills).

2

The mid-term project reVISIon resulted in these inputs being changed to seven storage and milling complexes with bulk storage and bulk grain handling equip­ment. Each of the seven complexes was designed for a storage capacity of 5,000 MT and a milling capacity of 9,600 tons per year.

Objective 4 was to be achieved by (1) 60 man-months of technical assistance in the areas of ~roject coordination, mill operations, field operations, private industry development, manuf8cturing, and financial controls, (2) training pro­grams and study tours a~ranged under the technical assistance contract, and (3) training of 1,021 members of the PMB staff in the areas of procurement, mill and storage operations, and maintenance. This training would be conducted by the Rice Processing Research and Development Center (RPRDC).

The mid-term project revision amended the technical assistance to 76 man­months of cO:lsulta~-.cy and amplified the training plan to provide additional training for the PMB staff. This training was to consist of (1) management development for senior and middle management, (2) improvement of supervisory skills, (3) improvement of operat.i.~nal skills, and (4) training of support personnel. Sixty-nine PMB staff positions were targeted to receive this addi­tional training.

Objective 5 was to be achieved by (1) the purchase of ten 1-ton per hour rice mills, seven of which were to be resold to the ~rivate milling sector and three to the manufacturing sector for use as prototypes in the manufacture of addi­tional mills and (2) the training of 218 privat8 millers by the RPRDC. No mid­term project revisions were made in the private sector development area.

Expected Project Results

When the following conditions, set forth in the project design and modified by the mid-term project revision, were met, this would indicate that the project purpose had been achieved.

Physical Indicators

Bulk storage facilities at 7 milling complexes

PMB storage capacity increased by 35,000 tons

PMB milling capacity increased by 67,200 tons per year

PMB parboiling capacity increased by 67,200 tons per year

Moisture meters in use at purchase centers: 3,180

Moisture meters in use at PMB warehouses: 321

PMB officers trained out-of-country: 69

PMB officers trained in-country: 1,021

Private-sector milling capacity increased by 33,600 tons per year

Private-sector millers trained: 218

3,

~fficiency Indicators

Beginning of Project

End of Project

Milling yield Parboiled milling Raw milling

67% 65%

71% 69%

Reduction in losses due to: Moisture content DOl.Kage storage loss Milling and parboiling loss Consumer reprocessing

2. 5~~

4.3% 2.1% 2.5% 12.m~

0.5% 1.3% o.5~~

o.5~~

" .m~

Reduction of PMB costs: Rupees per ton of parboiled rice 2,579 2,445

GSL Policy Changes

Two major policy actions, as detailed in Appendi.x B, may have produc·;r! some effect on the Paddy storage and Processing Project. The first was the liberal­ization of the economy by reducing the restrictions on internal and external trade. This encouraged the private sector to increase its participation in the purchasing and processing of paddy, as well as the marketing of rice. The second was the replacement of the subsidized rice ration system by a food stamp system in the latter part of 1979.

Because of the second policy action, a large number of consumers began purchas­ing their rice in the open market. Deliveries of rice by the FC to cooperative societies declined substantially. As B result, the FC's requirements for pur­chasing rice from the PMB were drastically reduced. The increased demand for rice in the open market created marketing activity in the private sector. This increased demand also forced up the price of rice, which resulted in an in­crease in the open market farm gate price of paddy. Since 1980 the open market farm gate price of paddy has remained above the GPS price, although the GPS price has been increased from 40 Rupees per bushel in 1980 to the current level of 62.50 Rupees per bushel.

Thus the PMB experienced a sharp decline in its paddy purchases and rice sales during the past few years. Where it had purchased approximately 30 percent of paddy production in the past, the percentage declined to 9.9, 5.7, 3.9, and 12.3 percent of production for 1980, 1981, 1982, and 1983, respectively.

Discussion of Draft GSL/USAID Final Evaluation Report

All the inputs of the original and revised project, as discussed in the draft report (36), have not yet been utilized (moisture meters) or are not yet fully operational (milling complexes and 1-ton per hour milling units).

The most important question is whether these inputs have led to the achievement of the expected outputs of the project. If one assumes that all milling facil­ities will become completely operational in 1984, the actual outputs compared to the expected outputs are as follows:

4

Physical Indicators of Project Achievement

Expected Actual Outputs Outputs

PMB bulk storage increase (units) 7 6 PMB storage capacity increase (MT) 35,000 30,000 PMB milling capacity increase (tons/year) 67,200 72,000 PMB parboiling capacity increase (tons/year) 67,200 57,600 Moisture meters in use:

Purchase centers 3,180 250 PMB warehousef, 321 590

PMB personnal trained: out-country 69 60 In-country 1,021 366

Private sector: Milling capacity increase (tons/year) 33,600 33,600 Millers trained 218 108

The physical indicators of project achievement show that for the most part, expected outputs have been realized. The major question lies with the effi­ciency indicators of project achievement. Since t.he project's milling facil­ities are just becoming operational, there is no history of operational effi­ciency. Even if the facilities had been operational for some time there is doubt that the efficiency of the operations could be measured because of the lack of correct management tools.

There is no evidence of a grain accounting system (inventory management) being used to determine milling yields and operational losses due to dockage, normal shrinkage, excessive moisture, or parboiling and milling loss. Neither is there evidence of a sound cost accounting system being used to measure the op­erational costs of storage and milling by individual unit. These areas of need and project fulfillment have not been addressed within the Draft Report.

Therefore, t.he efficiency indicators of project achievement are as follows:

Efficiency Indicators of Project Achievement

Expected Actual Results Results

l'1illing yield: Parboiled milling ? Raw milling ?

Reduction in loss due to: Moisture content o.5~~

Storage loss o.5~~ ? Milling and parboiling loss o.5~~ ? Consumer reprocessing o.m~ o.m~

Reduction of PMB costs: Rupees per ton parboiled rice 2,445 ?

5

The project was to have a secondary output of a pilot project to determine the technical and economic feasibiity of cleaning and drying paddy and the design of an effective system for the introduction of applicable technology. This pilot project W8S never implemented, however thele is no explanation given in U:e Draft Report. Since there was prior limited research conducted in this area (38), the final evaluation report should state why the pilot project was not implemented.

While not all specific project objectives were attained, the goal of increas­ing storage and milling capacity in Sri Lanka could be said to have been achieved by the project. However, the other goal of increasing the efficiency of paddy procurement, storage, and processing in Sri Lanka needs further at Len­t ion. The study team believes that GSL policy changes influenced the role of the PMB in the rice sector and consequently affected the original plan for utilizing such equipment as moisture meters, the 1-ton per hour mills, and the seventh milling complex. However, one can not blame policy changes for either the failure to alter plans or the other deficiencies (lack of maintenance pro­grams, lack of maintenance training, no grain accounting systems, no cost ac­count ing, and needed impruvement in procurement and storage pract ices) which will prevent the project from achieving its second goal. In essence, the proj­ect at this point is ~ne which has transferred technology, but not the techno­logical base.

The study team believes that this area of need should be addressed within the final evaluation report so that in the short run all storage and milling facil­ities developed under this project will operate at a hiqh level of efficiency. The final evaluation report should contain a description of the steps which will be taken to arrive at full operational and economic utilization of the complexes.

The study team agrees with most of the recommendations presented in the GSL/ USAID evaluation but believes some should be expanded because they are of higher priority in finalizing the project and further developing the rice industry. The study team suggests that the final evaluation report contain a more concise set of detailed steps by which some of the recommendations in the draft report can be achieved.

First, a set of steps should be clearly spelled out for each of the alterna­tives stated in the draft report for distribution of the moisture meters. These steps should include a time frame in which it is expected that each step will occur.

Second, if efforts are unsuccessful in securing funding for installation of the seventh milling complex, the study team suggests an alternative course of action involving the use of the existing building components for bagged grain warehouses. The milling and bulk handling components as well as the cleaner can be easily utilized as whole replacement units, or the machines can be dis­mantled and used as repair parts.

Finally, regarding the assistance to purchasers of the 1-ton per hour mills mentioned in the draft report, clarification is needed as to what specific actions will be taken, when they will be taken, and by whom.

6

SECTION II

THE ECONOMIC AND MARKETING SITUATION

The economic and marketing environment surrounding the rice and coarse grain sectors has changed dramatically over the past five years. In the rice sector this presumably has been due to increased levels of production and GSL policy actions. In the coarse grain sector, increases in support prices and, in some cases, a dramatic increase in production have been the most evident factors.

ThB Rice Sector

Paody product ion, as detailed in Table 1, Appendix E, has increased at an annual growth rate of slightly over 6 percent. Rice imports necessary to meet consumption demand have declined accordingly, as shown in Table 2, Appendix E. This increase in production and the expected large 1984 Maha harvest have engen­dered statements in GSL agencies that Sri Lanka is at or near self-sufficiency. Whether or not this is correct depends upon two factors: (1) the required or desired level of consumer demand (consumption) and (2) the amount of posthar­vest losses in the system.

TablE' 5 of Appendix E lists different projections of rice consumption levels. Preliminary analysis reveals that, depending on the loss factor and a gi ven consumption level, self-sufficiency has quite possibly been achieved. If this is so, the rice sector can expect an additional set of marketing problems as a surplus develops.

The major GSL institution involved in paddy procurement and processing and rice marketing is the PMB. The role of the PMB is one of an operational entity which purchases paddy at the GPS price, processes or resells the purchased paddy, alld markets the rice output of its own mills. 1 In addition, the PMB has undertaken such actions as the purchase of milling equipment for resale to the private sector and the operation of retail outlets. The PMB also controls the activities of the RPRDC.

The FC purchases small quantities of rice from the PMB and is also involved in the importation of rice. This rice is sold to the cooperative system. However) this has currently become a very minor part of the total rice market. 2

AU othor paddy and rice marketing activities are in the privdte sector. As pr~viously discussed in Section I, GSL policy has resulted in the private sec­tor becoming a dominant influence in paddy purchasing and processing, as well as in ri~e marketing.

The PMB's procurement of paddy has declined as a larger share of the marketable surplus continues to be purchased by the private sector. The PMB has also had to change its sales strategy for rice as well as paddy from one of sales to the

1 Refer to Table 8, Appendix E, for the PMB's storage and milling capacity.

2 Refer to Section I.

7

FC to one of open market sales, as detailed in Table 4, Appendix F. Sales of r ice and paddy into thl' open market have become an important factor in the PM8's operations.

The open market demand for rice, initially generated by the food stamp program, encouraged rice millers ir. the private sector to increase their open market milling operations. The general consensus of opinion is that private sector milling has become highly seasonal in output and operations. In order to re­duce the high working capital costs of maintaining paddy stocks and to compen­sate for the lack of adequate storage (rather than investing in storage facil­ities), millers have turned to intensive milling during and shortly after the harvest. This has increased the turnover (If stocks and reduced the storage period for paddy. It appears that the curfe"t milling pattern is one of high activity during and shortly after the harvest seasons and low activity during the non-harvest seasons, however the accuracy of these observations is open to question. Although there Dre two harvest seasons, one of which produces approx­imately two-thirds of the tutal yearly p!oduction, consumption naturally occurs at a steady rate throughout the year. No ffilswers could be obtained to the ques­tion of who was purchasing the milled rice and storing it while awaiting con­sumption. The lack of original and descriptive market research prevents a clear and concise appraisal of changes taking place in the rice sector.

Finally, sharp price increases have taken place. As the implementation of the food stamp program created additional demand in the open market, the price of r ice increased. This consequently was translated by increased private sector activity to higher open market farm gate prices for paddy. Open market farm gate prices of paddy have remained well above the GPS price offered by the PMB. While there are seasonal and geographical price differences reflecting time and space, seldom have district average prices fallen below the GPS price.

The Coarse Grain Sector

Historically, coarse grain crops have been produt' l d in non-irrigated upland areas throughout the country. These dry land areas are referred to as "chena" and the crops are frequently called chena crops. It is important to note that throughout the time period 1960-1980 there was a strong drive to attain self-sufficiency in the production of rice, and while coarse grains were given cursory attention in planning and program documents, most of the national re­source efforts were devoted to rice.

The agricultural development plan of 1970 contained several references to coarse grains and established objectiveo and goals for the agricultural sector producing these crops. The idea of a cropping systems approach and regional specialization with respect to these crops evolved from this planning docu­ment. At this time attention was being given to the possibility of supple­mental irrigation to enhance production. Attempts were also made to resettle some of the highland chena areas with the hope of establishing a dryland­based agriculture focused on the product ion of crops other than rice. This system has met with only limited success due to the lack of an adequate re­source base to support the program.

Th~ acreage planted to corn, cowpeas, blackgram, greengram, peanuts, soybeans, and sesame have all increased significantly since 1970 as shown in Table 18,

B

Appendix E. The acreage planted to millet and sorghum has experienced strong downward trends, with sorghum being of little consequence in the coarse grain sector. The increase in production of coarse grains is mostly attributable to the expansion of cultivated acreage. Average yields have increased only slightly. Land use patterns, as illustrated in Table 21, Appendix E, reveal that of the coarse grain's 15 percent of total crop acreage, the most .impor­tant crops are corn, cowpeas, sesame, greengram, and peanuts, in that order.

There has been little change since 1979 (10) in the diversity of GSL institu­tions involved in the marketing of coarse grains. Many of these are trading companies, such as the Cooperative Wholesale Establishment (CWE), while others are processors such as the Ceylon Oils and Fats Corporation (COFC). The state marketing sector for coarse grains can be characterized as a highly-fragmented system. The GSL organizations and respective crops handled are listed below:

Organization Coarse Grain Crop

Ceylon Oils and Fats Corporation Corn, soybeans

British Ceylon Co~~oration Corn

Mahaweli Authority Sri Lanka Corn, blackgram, cowpeas, greengram, peanuts, soybeans, sesame

Markfed Cowpeas, greengram

Cooperative Wholesale Establishment Blackgram, cowpeas,

greengram, peanuts

Paddy Marketing Board Corn, millet, blackgram, greengram, cowpeas, soybeans, peanuts, sesame

The quantity of coarse grains actually marketed or purchased by these institu­tions is extremely small, amounting to only 10 percent of production. Corn alone accounts for nearly 80 percent of the total volume of coarse grains han­~led by GSL organizations.

The majority of coarse grain crops are handled by the private sector. The typical market channel begins with the movement from the producer and continues to a local trader, who in turn sells to a regional or intermediate assembly market or to the final wholesale market in Colombo. The local assembly market is typically represented by a local retail merchant who also serves as the initial buyer of these crops from the farmer. The lack of descriptive market­ing studies prevents any analysis of the total volume of coarse grains moving through the market system. The amount of various commodities retained for con­sumption at producer level is unknown.

Exports of coarse grains are detailed in Table 22, Appendix E. The major ex­port crop is sesame, with approximately 77 percent of production going to ex­ports. Millet, blackgram, and peanut exports represent only a minor portion of production, amounting to 16, 15, and 13 percent of production, respectively.

9

Floor prices for corn and sorghum were established in 1974 and by 1980 had been expanded to include millet, blackgram, greengram, cowpeas, soybeans, peanuts, and sesame. The level of floor prices has increased significantly since 1980, as shown in Table 17, Appendix E. During the 1970-1982 period, farm gate pricfJf:; for all the major coarse gr.ains experienced substantial increases, as can be seen in Table 19, Appendix E.

The PMB was given the responsibility for maintaining mlnlmUm prices for most coarse grain crops. While the PMB' s purchases may seem to be erratic, there is no reason to expect a certain level of purchases by a price support agency. Year-to-year fluctuations in production and demand by private sector traders can easily produce various levels of purchases by a price support agency. The other GSL agencies listed above do not necessarily have to abide by the minimum price under which the PMB operates and can therefore purchase coarse grai~s in the marketing system at lower prices. This irrationality would seem to irnpose serious constraints on the PMB in its resale of coarse grains purchased" as well as present a conflict in the policy of a minimum floor price to the pro­ducer.

Near self-sufficiency in rice has led planners to suggest the need to focus additional development resources on coarse grains with the hope of attaining self-sufficiency in selected crops. It should be noted that there is a belief that exportable surpluses may be developed in several of these crops. These consider8tions seem to be leading to a high level of emphasis on the allocation of new development resources to the production of coarse grain crops.

10

SECTION III

THE STATE OF POSTHARVEST PRACTICES

Postharvest practices for paddy and coarse grains have changed little, if any, over the past decade. Major production plans, either in progress or under consideration, spearhead the drive towards self-sufficiency in food. Tradi­tionally, little emphasis has been placed on what happens to the grain after product ion. If this area cont inues to be neglected, poor postharvest prac­tices will result in substantial losses, and efforts to increase production will have been partially wasted.

Losses

The beneficial results due to the increasing level of paddy production will be negated in part by postharvest losses. These losses can be placed into four major categories: (1) field losses, (2) handling, transport, and threshing losses, (3) storage losses, and (4) processing losses. Prevalent practices of harvesting paddy in Sri Lanka allow the mature crop to stand in the field until the moisture content of the grain falls to a level suitable for the use of traditional harvesting and threshing methods. This practice leads to untimely losses by shattering, lodging, predator damage, and the effects of excessive sun or rain (46).

Traditional threshing practices begin with the handling and stacking of paddy prior to the threshing operation. Threshing is most commonly accomplished by the use of manual treading, animal treading, or tractor treading. The resulting detacheu grains receive a preliminary cleaning and the crop is dis­posed of at the earliest opportunity. Losses of grain in this category can be due to contamination, spillage, physical kernel damage, wetting, predator damage, and the creation of checks and cracks in the kernel due to intense drying in the sun and coo] ing at night. These cracks and checks will later cause breakage during milling.

Grain loss during storage is a result of two principal factors: (1) the quality of the paddy stored and (2) the management of the storage facility.

Processing losses during milling will depend on such factors as the moisture content, age, and variety of paddy, severity of the parboiling process, condi­tion of the milling equipment, and skill of the mill operators.

The amount of postharvest losses in the rice sector is for the most part un­known. No significant study in this field has been undertaken since 1975 (45, 46). Losses estimated by category or in total are stated in numerous publica­tions and discussions, but these are at best merely observational guesses. F.~timates of losses are given as 13-25 percent during har!esting; 2-5 percent during handling, transport, and threshing; and 10-15 percent during storage and processing. Even stated PMB storage losses, shown in Table 9, Appendix E, do not reflect expected losses except for 1981 and 1982.

There has been no identifiable research into postharvest losses of coarse grains, thus one can only speculate as to the magnitude of losses that exist. It is certain that if commercial production is expanded to any significant

11

degree in any of these crops, more atter,~ion will need to be directed to their storage and handling. At their present level of production, it is unlikely that significant amuunts are stored for long periods of time, thus the threat of postharvest storage losses is reduced.

The obvious fact is that actual postharvest losses for paddy and coarse grains are unknown. No one has recently researched the problem and no current re­search is being conducted in this important area.

Quality Standards

Certain quality specifications for paddy and rice do exist in Sri Lanka. Both the PMB end the open market system use some type of class and/or quality spec­ifications. However, a standard classification and quality grading system does not exist for the industry as B whole.

In the case of the PMA, quality specifications for both paddy and rice have been established. SpecIfications for paddy are detailed in Table 11, Appendix E. The~e specifications have not changed since 1980. It is not known to what extent the PMB follows these specifications in its purchasing of paddy. The only correct way to test adherance to specifications would he to sample a large number of warehouses.

The quality specifications used for paddy purch3ses in the open market seem to be unknown to government officials. Therefore, the PMB speci fications must have been set in some arbitrary manner and mayor may not reflect existing con­ditions in the open market purchases of paddy. It is not known whether the private sector has a more complex system than the PMB concerning paddy quality as related to price.

Classes and grades of rice in the open market are as follows:

Class Samba Parboiled Kora Raw red Raw white

Grade I, II, III I, II I, II

The classes represent physical characteristics. Samba is white short parboiled rice. Parboiled is white medium or long grain parboiled rice.

grain Kora

is white long and thin grain parboiled rice. Raw red is red rice milled without parboiling. Raw white is white rice milled without parboiling. Some other minor classes of rice are found in the open market but are of minor importance. The grades are a representation of what the buyers and sellers within the wholesale market consider to be the quality of the rice being marketed. The grades appear to be based on visual and odor characteristics such as color, degree of polish, number and sizes of broken kernels, and type of odor.

The PMB produces four classes of rice: samba, parboiled, raw red, and raw white. The Pt~B parboiled class encompasses the open market classes of par­boiled and kora and is sold as parboiled in sales to the open market. The PMB has no grade nystem, b~it rather a set of quality specifications which are

12

the same for all classes. Quality specifications for PMB milled rice are described in Table 12, Appendix E. These quality specifications have been upgraded from time to time. Most likely this is a reflection of past Fe quality enforcement actions as well as the current need for the PMB to sell rice into t~e open market system.

Some initial research work as well as discussion papers (11, 12, 47) have been directed towards the establishment of a system of standards and grades for paddy and rice. However, the research effort '~as not continuous nor is there evidence of any current effort directed towards the development of standards and grades.

A very broadly stated set of minimal quality specifications for coarse grains published by the PMB is described in Table 15, Appendix E. There is no evi­dence of any other quality specifications for coarse grains. There apparently is a set of specifications for sesame used in the export market. However, the specifications refer only to color and color mixtures as the significant grade criterion. Exports of coarse grains, including sesame, are on a submitted sam­ple basis.

In the area of crop quality many reports suggest that Sri Lankan coarse grain crop quality may be far lower than that found in international trade standards. Specific reference is made to quality problems stemming from premature harvest of certain crops, with the resulting immature grain usually being of inferior quality. Other apparent quality problems derive from drying and storage meth­ods thAt Qre commonly practiced in Sri Lanka. Because nlany of the coarse grain crops do not reach urban or export markets in large quantities, it is likely that additional quality problems have not been identified.

The movement of increased production of coarse grains into domestic markets and expr.l. t trade channels will require the development of quality standards aild grudes or quality specifications to facilitate trading and to provide producers, marketers, and processers with a standard of quality acceptable throughout the market system.

13

SECTION IV

THE STATE OF PROCESSING AND PRODUCT DEVELOPMENT TECHNOLOGY

Agro-based processing industries in Sri Lanka have not been significantly im­proved over the past decade. In many instances, such as rice milling, this is the result of deficit ~roduction and government policies. In some areas, such as the coarse grain sector, this is the result of low levels of production in conjunction with a lack of new food product or marketing developments.

However, large production increases in paddy and a renewed emphasis on coarse grain product ion, along with the recent changes in government policies, are creating a growing need for improved processing techniques and new product development.

Available Technology

The private sector paddy milling industry in Sri Lanka can best be character­ized as an industry which has seen the lntroduction of few innovations or new techniques over the past two decades. The major activity in this area has centered around the importation of milling equipment through the PMB for resale to the private sector. Even the Paddy Storage and Processing Project attempted to address the problem of improving the milling industry by using this approach. Overall, this has proved to be an extremely poor solution to the problem of how to provide the milling industry with innovations and technology.1

The RPRDC of the PI~B is the only institution in Sri Lanka that is fully devoted to the research and development of postharvest technology in rice. The RPRDC also undertakes training and consultancy activities which are directed towards improvement in the postharvest system. The center's activities focus solely on the rice postharvest system and do not include product development. This cen­ter has been in operation since 1976. To date, its role in the introduction of innovations and new techniques has been very limited.

Product development in rice has for the most part been ignored. The probable reason for such a lack of attention is the low level of rice production in the past. All the rice which was rroduced was consumed, regardless of quality, in traditional food uses.

Public sector institutions doing work in the area of food science include two groups administered by the Department of Agriculture (DOA). These are the the Food Technology Research Section of the Central Agricultural Research Institu­tion and the Soybean Foods Research Center. These research units are housed in separate facilities and have rather narrowly-defined areas of research respon­sibility.

The Food Technology ReseBrch Section is rloing research on finding new ways to prepare nutritious processed foods from such crops as greengram, sesame, and millet. Nutrition, cost, ease of processing, and consumer acceptance are key

1However, the PMB, through the Paddy storage and Processing Project and other prior development activities, has been the recipient of thirteen modern milling units over the past decade.

15 Previous Pag,~ BIanJc:

criteria being explored by this research group. This research group is not as as well equipped or as well staffed as the Soybean Foods Research Center. No formal cooperation between the two research g~oups was evident.

The Soybean Foods ReseF.lrch Center is working on several uses of soybeans as food additives and appears to have some prospects for making future contribu­t ions to food technology. This research center has successfully developed a dehydrated soy milk product which is currently under commercial production. 1

The scientific staff working in the DOA programs relating to food technology consist of six persons holding master of science degrees as shown in Table 20, Appendix E. There were no Ph.D. scientists in either the Food Technology Re­search Section or the Soybean Foods Research Center and only a limited number of technical support personnel. The study team found no other government agencies working in the area of food processing technology.

In the private sector there is very limited information on the level of tech­nology being employed by processors or the efforts being expended to dp.velop new product technologies. 2

While there is a small, understaffed effort in progress working in the area of food processing and product development, this effort appears to lack strong financial support and does not have adequate inter-agency cooperation and co­ordj.nation.

Need for Technologi~al and Related Improvements

In the rice sector, past government actions, low production, and the economics of the marketplace have not encouraged the private rice milling sector to undertake improvements either in equipment or techniques. However, the situa­tion is now changing. With the advent of liberalized government policies and a different economic environment, the private sector has a larger role in the paddy processing industry. With the possibility of production surpluses in the near future, competition in the marketplace and consumer demand will require that a better quality of rice be produced. In addition,

1This product is currently being produced in a commercial plant with a processing capacity of approximately 4 tons of finished product per day. To date, marketing of this product has been very successful as evidenced by the fact that the plant's total output is being sold. This product is being mar­keted as a replacement for coconut milk in traditional food dishes. However, the success of the introduction of this product may have less to do with the product itself than with the rise in coconut prices. The present pricing structure of the product offers the new product to the consumer for about one­half the price of coconut milk.

2The Arthur D. Little (ADL) study (5) indicates that a solvent oilseed extraction plant of an estimated 50-ton per day capacity is operated by the CuFC. This study also cites the importation of 50 to 60 tons per month of textured vegetable protein \'/hich is probably incorporated into food products manufactured in the private sector.

16

if exports of rice are ever to be considered, quality will be a primary factor. In the current economic environment of high operating costs, more efficient equipment as well as improved operational and management techniques will be necessary.

Acquiring technology does not pose any insurmountable problems for the rice sector. Technology is available from organizations such as the International Rice Research Institute, and from many commercial sources. The most crucial elements are the adaptation of technological innovations to Sri Lankan eco­nomic, operating, and cultural conditions, as well as the simultaneous intro­duction of improved operational and management techniques. Without the latter, the introduction of efficient and applicable equipment may generate no real net benefit •

The underlying factor of possible production surpluses dictates the need for product development in rice. There may be great limitations to the exportation of expected surpluses in the form of milled rice, and the economic consequences of maintaining large surplus stocks for a food security buffer are usually not justified.

The effort to increase the production of coarse grains must be accompanied by the development and implementation of improved technology in the food process­ing sectors. There are several important reason:. 'dhy product development wiLl become important to any production development program directed towards the coarse grain sector. These reasons are as follows:

1. If production technology developments are successful, the agricultural production sector will produce larger quantities of commodities at a lower cost per unit.

2. Given present consumption patterns, relatively small production increases will be sufficient to satisfy domestic market needs.

3. Lower unit costs will allow for the possibility of new uses, such as pro­ducing sweeteners from corn.

4. The need to increase domest ic employment and income levels makes in­country processing for domestic and export markets a highly desirable area of economic development.

5. The need to improve nutritional standards throughout a broad segment of the po~ulation necessitates the development of food processing technology to provide low-cost, nutritious food products from domestically-produced crops as diet supplements. r~lses and some oilseed crops would appear to offer excellent opportunities in this area.

6. Because a successful development effort will most likely produce an ex­portable surplus in some crops, it will be helpful to have a processing industry that can meet international trade standards with its products. In this way, export markets for products such as vegetable oils and corn sweeteners will be more accessible to the system.

17

SECTION V

FUTURE POSTHARVEST DEVELOPMENT

Postharvest development encompasses a vast array of activities, from the threshing of a crop to the final consumption of the resulting food product. Areas of potential development are often restricted by circumstances in the marketing and economic environment. At present, a unique set of circum­stanc~s exists in Sri Lanka. These are (1) GSL policies which have to a large extent removed trade restrictions and therefore allowed the private sector to play an increased role in agricultural trade, (2) the achievement or near achievement of self-sufficiency in rice, (3) the possibility of future sur­pluses of paddy and rice, (4) the recenL increases in the production of coarse grains, and (5) the additional emphasis being placed on increasing the produc­tion of other food crops.

These conditions have created a new set of requirements and opportunities that need to be addressed by some combination of policy and development actions. Basically, sound sectoral strategies need to be developed which give rise to a set of priorities for further deve] opment of both the rice and coarse grain sectors. Future government policies directed towards the enhancement of coarse grain production will require dEtailed economic analysis of production and marketing alternatives in order to direct. the flow of resources to their most product i ve use. There are several speci fic areas that must be addressed if a sustained development program towards increased production is to have a reasonable chance for success.

It is not the role of the study team to develop a strategic sectoral plan. However, many a f the issues raised and the consequent recommendations of the study team are focused upon development policies and actions which need to be later incorporated in an overall strategic plan.

Utilizing the Paddy Storage and Milling Complexes

Of immediate necessity is the achievement of full utilization of the milling complexes constructed under the Paddy Storage and Processing Project. 1 If the PMB can not manage to accomplish this basic task and bring this project activity to fruition, then many of the other recommended development activ­ities will be doomed to failure before they begin due to the lack of ability of GSL organizations to carry out even the sjn~lest of tasks.

Based on the study team I s observations, as attached in Appendix C, bringing these complexes to full utilization will require two major stages of activity.

1With referencE! to the statement of work, the utilization of such oper­ating entities can only be optimized when there are alternatives available con­cerning different commodities to be used, different end products to be produced, or different process configurations. A rice mill such as these milling com­plexes, set in this type of system, can not be optimized. In addition, if such an entity is not operational, if its economi~ viability can not be tested, and if its objectives are unknown, then any consideration of optimal utilization is ludicrous.

19

The first stage is to bring the facilities to full operational status. The series of activities necessary to effect this transition is 3S follows:

1. Repair wall and floor joints and grind concrete floor surfaces to smooth­ness.

2. Inspect, and seal if necessary, each aeration fan unit in every bulk stor­age building.

3. Determine the need for installing millor equipment such as catwalk ladders leading to bin units, and carry out the installation process.

4. Carry out a complete process audit of each complex, including all unload­ing, cleaning, drying, conveying, and storage equipment used to move paddy into and out of bulk facilities.

5. Repair any deficiencies uncovered by the proc~8s Dudit.

6. Develop a routine maintenance program to ensure operational status of all machinery.

7. In conjunction Hith the routine maintenance program, develop a repair parts stocking procedure.

B. Install a maintenance crew with a maintenance supervisor in every complex. This will require tra ining at least two individuals of the maintenance crew in the repair and maintenance of each and every piece of equipment. This training should also incorporate sound sanitation practices since it should be the responsibility of tile maintenance unit to perform house­keeping.

9. Develop and install a grain acc unting system specially designed for the complexes. This system will be ilile to determine dockage losses, normal moisture shrinkage, excess moistu 1 loss, and milling yields.

10. Develop and implement a program wh 'h will improve the operational ~kills

of operators, epecially in such arl 3 as equipment operation and moisture determination, so that paddy arrh ") at the mill house at the optimum moisture content.

11. Assure that the laboratory technicians u'e trained to be able to determine the quality of paddy being received. This type of information is required for the grain accounting system and for sound milling operations.

The second stage is to bring the facilities to a sound economic level of utili ­zation. This CAn be accomplished only after the complex is brought to full operational readiness by the above act ivities. The steps required are the following:

1. Develop and implement a cost accounting system which, in conjunction with the grain accounting system, can determine operational costs by function. This will allow each complex to operate as a profit eenter. The effi ­ciency and management of the six complexes can then be compared among them­selves as well as to expected standards.

20

2. Define the management structure of the complex and establish responsibili ­ties for all actions. The general manager of the complex should be re­quired to report to his supervisor on a monthly basis. This report on mill performance should include all items pertinent to operations as con­tained in the grain and cost accounting systems.

Once these complexes are brought up to expected standards, the final que" tion is one of paddy quality and availability. Good quality rice can not be milled from poor quality paddy~ hence the importance of developing a system of stan­dards and grades to be used for purchasing paddy. Assuming that sufficient paddy is available, the complexes will need to purchase 2.24 million bushels of paddy per year. This will allow them to operate at full capacity.

At this point, however, it must bp. said that unless these facilities are brought to the correct level of operational and economic utilization, the question of how they are to be used is a moot one.

After the six milling complexes are brought to the point of full operational and economic utilization, a decision needs to be made about the future use of the PMB's other milling facilities. First, each of the silo complexes should undergo technical study to determine what rehabilitation work is required to bring them back into correct and full operational status. An economic feasi­bility study should accompany this to determine if the cost of rehabilitating these sites is feasible. If so, these units should be rehabilitated so as to utilize the available storage and milling capacity. If not, the units should be closed, and either sold or dismantled. All other milling units owned by the PMB should undergo the same rigorous test to determine which mills should be closed and which should be upgraded.

Producer Price Stabilization

Based on the major premise that the GSL is attempting to further develop the free market system and encourage private sector initiatives, the question of price stability arises. In a totally free market system, price is the mechan­ism that transfers messages from the marketplace to suppliers (producers). Suppliers are expected to react to market demand via prices received by either reducing or increasing product ion of a commodity. 1 In theory, these act ions optimize the allocation of. resources. However, in reality, a large number of conditions exist which preclude such unrestricted price actions from achieving the desired intent without severely damaging some segment of an industry.

In the case of the rice sector, two prominent conditions exist: (1) the great possibility of future paddy surpluses and (2) the currently limited economic crop alternatives to paddy product ion. The paddy production portion of the rice sector is composed of nearly one million small farmers who constitute a private enterprise sector. In the past, paddy prices fixed by the GSL and irrigation development projects encouraged producers to increase paddy produc­tion. In fact, irrigation development is still going on and a fixed price system for paddy remains in effect.

1Such an expect ation of react ion to price is based on the assumption that information (market news of prices and volumes) is available to all sec­tors of the industry, especially producers. The expectation also assumes that a well-developed market structure exists.

21

If production surpluses occur and the open market farm gate price of paddy is allowed to fall drastically for whatever reason, paddy producers will receive ~ mixed set of messages. They have come to understand the need to produce more paddy via high prices and availability of irrigation water and other inputs. Suddenly they would be told through low open market farm gate prices and lim­ited PMB purchases that they are no longer to produce such large quantities of paddy. The producers will then ask themselves what they should produce. In many cases the producers have no current economic alternative crops. Such price actions may cause a state of chaos in the paddy production subsector. With new land coming under cultivation and the possibility of p~ice volatility, extreme year-to-year production variations could occur. On the other hand, if production levels were to be maintained because of the lack of economic alter­native crops, extremely low paddy prices would result. Farm incomes would be substantially lowered in either case, resulting in an adverse economic impact on many regions of the country.

Because of t.he potential for rice surpluses and the lack of current economic crop alternatives, a producer price stabilization program needs to be initiated. The goals of such a program would be to (1) support paddy prices at a rational economic level, (2) assist in encouraging improved paddy quality, (3) support coarse grain prices at rational economic levels that are coordinated with production improvement programs, and (4) restrict potentially large future paddy surpluses by rational price actions which will allow the gradual transi­tion by producers to other economic alternative crops.

Achiev ing these goals requires a set of particular actions. Two important actions are required to achieve the first goal. First, the GSL must have an agency willing to purchase all paddy offered to it, especially during and shortly after the harvest. The stock must be maintained and sold during non­harvest periods. Any end-of-year stock carry-overs must be liquidated through exportation or a buffer stock action (described in the following subsection). Second, the agency should have its own economic analysis section which works closely with whatever agency has been assigned the responsibility for price analysis and which makes recommendations for setting rational prices. In this case the study team believes that the primary price analysis section should be located in the Marketing Research Division (MRD) of the Agrarian Research and Training Institute. There is an existing base in the t~RD which can be strength­ened to meet these needs. This concurs with past recommendations (10, 18).

Price analyses must address possible floor prices for paddy as related to yield, quality targets, marketing and processing costs, consumer rice prices, price elasticity of rice, world prices, domestic transportation costs, and open mar­ket and floor prices of coarse grains. Also, a discount for excess moisture and dockage should be incorporated into the pr icing schedule. The expected result is a rational floor price, with moisture and dockage discounts which are fair to all segments of the industry: producer, marketer, processor, and consumer.

Achieving the second goal requires that rational quality standards be devel­oped. The Producer Price Stabilization Agency (PPSA) would be required to rigidly enforce these quality standards in its purchasing actions, as ~Jell as the price discounts for moisture and dockage. Low quality paddy would be severely discounted, and if it were purchased at the discounted price, it would be sold as quickly as possible into the market system.

22

The third and fourth goals again require an agency standing ready to purchase all price-supported coarse grain crops offered to it, ensure the quality main­tenance and resale of such stocks, and liquidate all end-of-year stocks above some stated security reserve carry-over. This will require that price analysis actions take into consideration (1) the need to structure floor prices on a geographical basis (space) and (2) the need to adjust floor prices up or down from year to year, or within the year, to reflect the current surplus situetion. 1

In order to induce farmers to expand their production of coarse grains it is important that realistic floor prices be established for the crops for which expanded production is desired. The elements of establishing a "realistic" or "target" price for a given crop are extremely important and must have careful consideration by policymakers who are implementing the floor price programs.

The first point requiring comprehensive analysis is the supply response of producers to alternative price policies. This analysis must be made for each geographic area of the country based on complete data on cropping alternatives and an analysis of both economic and social forces that will cause production shifts to occur in a given region. This analysis will require a comprehensive data base on hj ltorical producer responses and sophisticated analytical systems to provide reliable production response estimates. In the early development of the system, policy analysts should be prepared to make adjustments from season to season in order to refine production targets. In addition, the dynamics of the system will require frequent updating of data inputs in order to reflect changing priceD and production costs for all alternative crops in the system.

The second area that must be considered when identifying floor prices is the determination of the effective demand that will be expected at the proposed support price levels. This analysis will require an evaluation of domestic consumption and determination of the level of sales that could be achieved in export markets at the proposed floor price level. Potential impacts of floor price policies on processors and grain conversion industries such as livestock industry users should be given careful consideration as floor prices are established.

If floor prices above world market levels are suggested, policymakers should be made aware of this and appropriate protection must be taken against lower cost imports. When setting floor prices, consideration must be given to import duties to align imported commodity prices with domestically-produced commodity prices. This will prevent unintentional market surpluses by having imports priced lower than domestic product ion. Export subsidies must also be consid­ered in order to align domestic prices with world prices when exportable sur­pluses exist. and domestic prices are above world prices. Policymakers should also be aware of program costs that could be incurred if unintended inventories are accumulated by the price supporting agency and need to be liquidated in the export market.

1Again, the requirement for close coordination with the institution performing the price analysis is evident.

23

The justification for a producer price stabilization program is to promote the orderly flow of resources into the development of a technically and economi­cally efficient grain sector of an agricultural economy. In order to permit the allocation and economical use of resources (land, labor, and capital in­puts), by farmers should be given a planning price and reasonable assurance of market access. The price should be established at a level that will be slightly below the expected market equ.i.l.ibrium so the majority of the crop will flow through private sector market channels.

Farmers in many areas of Sri Lanka do not use purchased inputs in the produc­tion of crops other than ri~e. There are generally two basic reasons for the limited use of purchased inputs: ( 1) product ion uncertainty due to weather conditions ana pests and (2) market uncertainty due to variations in price and market access. Market uncertainty can be greatly reduced through an effective grain price stabilization program.

The PMB is considered by many to currently operate in such a role. In a lim­ited way it does. However, many di fferencss between the PMB's current opera­tions and the producer price stabilization described above are evident. The objer.tives of the PMEl give it the status of a state-owned operational entity which competea directly with the private sector. The PMB's milling operations also put it in direct competition with the private sector. A producer price stabil.ization agency, or a buffer stock management agency, is not a competitor to the plivate sector, but a support agency for the producers, marketers, and processors operating in the private sector. Given the GSL's desire to further develop the private sector, the PMB's current operations are in direct conflict to being a producer price stabilization agency.

As a support agency, the PPSA should be able to provide the industry with fa­cilitating marketing functions such as export market asslstance, standards and grad8s development and implementation, and price analysis actions (in conjunc­tion with the institution performing price analysis). None of these is cur­rently within the scope or ability of the PMB's operations.

Buffer Stock Management

There are basically two types of buffer stock actions. The first is the main­tenance of a given level of stocks from year to year so as to provide a cushion of available stocks in event of unforeseen events which could affect the level of production. This is a fuad security buffer stock action.

The second act ion is the mai.ntenance of excess stocks acquired through price stabilization progr ams. Stocks are maintained and liquidated through exports rather than through domestic marketing channels. In many cases the operation of such a buffer and the supporting export action may require some level of guvernment subsidy. Thls is a surplus buffer stock action.

As a result of implementing and operating a producer price stabilization pro­gram, the most likely buffer stock action in the near term will be that of a food security reserve. The storing and exportation of surplus stocks may occur further into the future. The operation of either type of buffer stock would be undertaken by the PPSA.

24

In reality, the buffer stocks for both purposes are held as a single inventory in which some quantity is specified as a food security reserve to be held for a given length of time, depending upon the commodity. The stocks in excess of this quantity are considered surplus buffer stocks which are to be liquidated as soon as possible via export.

Management of buffer stocks is extremely critical. Because they are held for a longer time than price stabilization stocks, the same quality maintenance procedures are used, but they must be more rigidly controlled and be of a higher standard. Sound inventory management, with a realistic rotational plan, must be pract iced. It should be noted that the stock management program for coarse grains has different requirements than that for rice. Long-term storage spanning more than 18 months is generally not desirable because of quality de­terioration due to storage in tropical climates for extended periods. Because of this limitation, stocks of coarse grains should be liquidated to levels not greater than that required to satisfy demand until the beginning of the next harvest season.

The responsible agency should have the capacity to proceed in developing an export market for rice, however narrow it may be. This export assistance should encompass a knowledge of the market structure, competition, pricing structure, market channels, required quality, and milling requirements. The agency should not export rice on its own account. It should lend its develop­ment expertise to the private sector by providing information, developing mar­ket leads, and assisting with regulatory, financial, and shipping documentation.

Quality Standards

As previously discussed, paddy and rice specifications do exist and are used to some degree in Sri Lanka. With the possibility of surplus paddy stocks in the near future, an ideal time has arrived to introduce a sound standards and grades system into the rice sector. The mechanism for introduction would be the producer price stabilization program.

Correct and effective qualil:y standards can not be achieved by introducing another country's set of standards into Sri Lanka. Standards and grades applicable to the existing internal situation must be developed from within. These standards can not be arbitrarily designed and imposed. Instead, they must be tailored to fit the marketinq system as it exists and to assist in modifying practices within the system. A standards and grades system has two basic purposes: (1) to ensure fair treatment for both the producer and con­sumer in relationship to the price of the commodity or product and (2) to en­courage producers to increase or maintain their production of better grades of commodities, and to discourage producers from producing low quality grades.

Five mrljor considerations are involved in establishing standards and grades. Each of these considerations will require market research to uncover the neces­sary factors with which to develop a set of standards. These considerations and the research required for each are as follows:

1. Normal paddy purchasing practices currently used in the industry. The government is unaware of the practices being used in the private sector. These practices will have to be determined by a series of marketing

25

research studies. The proposal by the Project Planning and Implementation Division of the PMB, attached in Appendix D is a sound beginning towards defining current practices in the industry.1 No applicable quality stan­dards can be developed without the knowledge gained by numerous studies such as these.

2. Quality of equipment and operating skills in the industry, including the PMB operated mills. Even the use of high-quality pAddy can not guarantee a quality finished product if no attention is given to remedying the poorly-maintained equipment and haphazard operational techniques currently in use.

3. Cnnsumer preference as to characteristics such as color, size, odor, bro­ken grains, polish, and flakiness. In a market characterized by surplus quantities of rice, consumers will begin to have a choice of which product to purchase. Therefore, the factcrs that consumers use to make purchasing decisions ne~d to be measured.

4. Export market requirements as to the quality of product required in dif­ferent market segments of world trade. There is a need to develop a sound undel'standing of the quali ties used by di fferent export countries and how these may vary from current specifications uscd in Sri Lanka.

5. Physical and chemical characteristics of the rice produced in Sri Lanka. A comparison should be made to determine how these characteristics rate in relation t.o rice produced in other countries and their respective grading systems.

Two aspects of setting standards and grades are (1) in general, moisture con­tent of the grain is not a sLandard and (2) dockage (extraneous material easily removed by cleaning) IS 1~I)t a standard. In the majority of cases, excess mois­ture and dockage are reflected in the pricing system as a discount from the grade of the commodity offered for sale.

The organizations which should be involved in the establishment of a set of initial standards and grades for paddy and rice are (1) the RPRDC, (2) the PMB, (3) the MRD, (4) ~epresentatives of private sector marketers and pro­cessers, and (5) representatives of producers. If the standards and grades are to have any meaning to the producers, it is most important that they be struc­tured so as to be easily implemented. The standards and grades could be made mandatory, but if they are not agreed to by all parties in the marketing sys­tem, evasion of use will occur since there is no institutional structure or system in Sri Lanka currently capable of enforcing mandatory standards and grades.

A set of specifications should also be created to describe the important qual­ity character.1 sties of the major coarse qrains. These quality speci ficat ions should be established and used by the agency administering the price support programs. The specifications should be developed through careful analysis of

1Such studies dealing with quality aspects Dhould, in reality, be the responsibility of the RPRDC.

26

the important quality characteristics that influence the value of the commodity in both domestic and export markets. Schedules of premiums and discounts from basic administered floor prices should be established to reflect these quality specifications. Careful study of private sector trade practices will help in determining realistic premiums and discounts for each commodity.

Postharvest Techn~

Postharvest technology is usually defined as technology in the form of equip­ment, innovations, and techniques which will improve all segments of a system from the harvest of a product to its sale to the consumer. In the case of Sri Lanka the study team has expanded postharvest technology to include harvest, since harvest ing methods must be taken into account when the issues of post­harvest loss reduction and quality factors are considered.

While postharvest loss reduction is usually the main consideration in the quest to improve postharvest technology, the factors of product quality and system efficiency should be considered equally important.

The magnitude of the problem can not be overstated. As previously discussed in Section III, postharvest losses of paddy, rice, and coarse grains in Sri Lanka are only observational guesses at best. Little research has been under­taken in this area. To improve the efficiency of both the rice and coarse grain sectors, a strong effort in postharvest loss research is necessary. Unless this is undertaken, any effort to improve efficiency within either sector will be wasted because there will be no basis on which to set priorities or on which to calculate the benefits of any improvement efforts.

Increased production and the development of commercial markets for rice and coarse grains will create the need to generate postharvest technology for these crops. First, a large research effort is required to be able to determine postharvest losses in terms of both quantity and quality. Research must be done in (1) harvesting and threshing losses, (2) farm storage and handling losses, (3) processing losses, including paddy parboiling, (4) commercial storage losses (including handling), and (5) losses in other segments of the marketing system.

Second, applied research must be intensified so that innovations and new tech­niques can be introduced into current operating systems to improve methods presently in use. These areas of applied research are (1) harvesting, (2) threshing, (3) quality standards, (4) milling or processing techniques, (5) storage, and (6) transport.

Third, training and consultancy activities in conjunction with the applied research need to be expanded so as to disseminate applicable findings to all sectors of the industry. The vast majority of activities concerning research and outreach (training, extension, and consultancy) should be directed towards producers, marketers, and processors in the private sector.

Although the net benefit of such activities can not be quantified, attempts to assess the impact of agricultural research in industrialized countries suggest that the social rate of return on investment ir: research and related activities is in excess of 40 percent annually. It would be expected that in Sri Lanka

27

the rate of return on investment in postharvest technology development would well exceed that of industrialized countries, provided that the research and dissemination were done correctly.

Product Development Technology

One key to the successful development of the rice and coarse grain sectors of the agricultural economy lies in the successful marketing of these crops. The transition from a near-subsistence level of production to a cash crop economy will require the development of new and innovative commodity utiliza­tion technologies.

There are three areas of research that need to be expanded: (1) new food uses for existing crops in order to provide new food products that are nutritious and acceptAble to consumers, (2) basic research on the functional properties and quality characteristics of grain crops, and 0) development of feasible commercial processing systems to process new food products. These three areas should be combined into one research unit because their functions are interrelated.

As pointed out in Section IV of this report, there is a strong need to develop a capable set of r~search institutions to work in the area of food processing and utilization. If new markets are to be created to commercialize the increasing production of rice and coarse yrains, then the appropriate tech­nology must be found to aid in the processing and distribution of the new food products. Sri Lanka, like other developing countries, will find product acceptance and convenience becoming more and more important as standards of living improve. In the future, urban households will shop for products that are conveniently prepared, tasty, and nutritious. These characteristics will be as important in the export market as they are in domestic markets.

Food processing activities can be important to the general economy in other ways. They can provide considerable employment opportunities. They can also serve as a means to generate needed foreign exchange earnings through the value added by the processing activity.

Much of the food processing technology in industrialized countries is highly capital intensive. Therefore it is important that Sri Lankan food scientists look at these processes with the idea of modifying them into more labor­intensive processes wherever possible. In its simplest form this may consist of changing a costly system of automated cOflveyol's to a system based on hand labor for moving products in a processing plant.

The research system should include an integrated Food Technology Research Unit (FTRU) with expanded facilities and better trained scientists. The FTRU should have the responsibility for helping develop an academic program to provide Masters of Science and Ph.D. training to scientists in the area of food science.

The FTRU should maintain a close linkage with private sector processing firms by presenting periodic seminars to technical personnel of these firms. There is a strong need to maintain a continuous flow of information to the private and public organizations responsible for operating processing plants and implementing other postharvest technology programs.

28

Supporting product development through research means that marketing analysis must be available. Not all commodities will have the same economic potential for new product development due to either production or marketing constraints. Marketing analysis must be available to allow priorities to be established for each crop in each major geogr8;J:lic area of the country. It is not in the best interest of new product development to base research decisions on any­thing less than sound marketing analysis. In addition, economic feasibility analysis is necessary in order to assess the economic potential of the pro­posed new ventures in commercial food processing.

Private Sector Involvement

The private sector handles the majority of commercial trade of rice and coarse grains at the present time. Promoting modernization in private sector rice milling and further private sector involLvement in the processing and marketing of coarse grains will necessitate the correct climate for private sector devel­opment. The psychological climate of the private sector must be one of confi­dence in the economy and in itself. As cogently pointed out in the ADL study (5)) this does not exist today. The study team perceives the same conflicts and mistrust which were described in the ADL report. Only through appropriate actions by government can this confidence factor be raised to the point where private sector development is encouraged and supported.

One of the major problems faced by the GSL in attempting to encourage modern­ization and increased participation of the private sector in the marketing and processing of agricultural commodities is the lack of information which ade­quately describes the private sector's marketing structure, channels, and conduct. 1 In general, it can be said that the private sector is composed of many small and medium-scale entrepreneurs, but differences in the size of their operations, the commodities handled, and their respective place in the market­ing system have never been clarHied through adequate market ing studies. 2

The study team was unable to determine whether any research and development activities are being carried out in the private sector. The low level of mar­keting development, the small scale of operations, and the lack of potential profit opportunities in new products due to high risk are not conducive to research efforts in either marketing or product development. Therefore, it would be expected that such activities are minimal. This aspect of the private sector should also be addressed by adequate marketing studies.

The approach to the modernization of the rice milling sector should involve the development of postharvest technology. This will require innovations and new techniques which are directly applicable to the Sri Lankan private sector mill­ing situation. The GSL needs to take the leadership in extending to the pri­vate sector an outreach effort consisting of communications, education, and

1For example, it is impossible to accurately determine the exact number of rice mills in Sri Lanka, their milling capacity, and the condition of the mills.

2Even recent marketing studies (2, 3, 4) do little to present a clear and well-detailed description of the marketing system, the specific private sector entities involved, and their specific location or actions within the marketing system.

29

pilot systems which will (1) assess needs and (2) show the private sector that proposed innovations and new techniques are economically viable. The private sector must agree to be the willing recipient of such actions.

This approach to modernizing the private sector rice milling industry entails more than simply importing new milling equipment. The past practice of at­tempting to sell importeCl mining macfiinery to Elle private sedor through a government organization is not the answer to the problems existing in the pri­vate sector milling industry, and this approach will not permit the desired re­sults to be obtained. Many of the ideas currently under discussion, such as credit programs or special financing for importing equipment, will no more solve the problem of private sector development than past equipment imports have. If advanced equipment is not economical at current prices, then it will not be economical at subsidized prices, especially without the introduction of new techniques and management skills that are required with all advanced equip­ment.

Increasing the involvement of the private sector in the marketing and process­ing of coarse grains will require the development of new products as well as assistance with the techniques involved in processing the commodities from which the new products will be made. Export markets for either raw commodities or processed products must also receive special attention.

In order to promcte innovation in the private sector, the GSL institutions responsible must develop and maintain communications with private industry. This will essentially mean that institutions such as the RPRDC, any new product development units, and the MRD will have to be oriented towards the private sector. 1 In some cases this may mean institutional realignment, no matter how unpalatable this may be to some government administrators.

The GSL must understand that private sector business operations are solely for the purpose of generating a return on investment. : .: .ack of communications, laws which damage the financial soundness of fI'. , " .1se, or pricing con­straints will simply cause the private sector to . ,_ same attitude towards government that it has today. Given the past histu_ . state and private sec­tor relations in Sri Lanka, the private sector will remain reluctant to become part of any development action until it perceives that the GSL actions are truly directed toward development of thi8 sector.

The study team believes that within the areas of postharvest development dis­cussed in this report, there are specific actions that the private sector should be encouraged to undertake. The relationship between the GSL and the private sector, as well as the actions to be carried out by the private sector, should be detailed in the studies proposed in Section VII of; this report.

There are specific items that are critical to the encouragement of private sec­tor initiatives in postharvest development. The following activities should be investigated to determine their feasibility, and incorporated into the proposed studies. The study team believes the essential activity areas are (1) repre­sentatives of the private sector chosen to participate in each of the study

1The MRD is placed in this group because of the lack of sound descriptivemarket studies that give a concise and accurate description of What occurs in the marketing system.

30

groups proposed in Section VII, (2) extensive workshops in which the private sector and GSL institutions will discuss and establish a system of standards and grades for paddy and rice and quality specifications for coarse grains, (3) private sector contract agreements for the holding and storage of buffer stocks, (4) the use of grants and other types of financial assistance to con­duct research trials or projects in postharvest technology or product develop­ment technology, (5) the use of financial incentives to encourage the adoption of improved technologies, (6) the use of financial incentives or grants to con­struct pilot or test processing facilities for the purpose of evaluating new processing and handling systems, and (7) the use of incentives to encourage the private sector to develop its capacity for conducting research and development activities.

31

SECTION VI

INSTITUTIONAL ARRANGEMENTS

The relationships between areas of postharvest activities in which development efforts need to be concentrated are referred to throughout Section V. These relationships imply the necessity of institutional arrangements which \'lOuld enhance coordination in a sector where too many institutions operate in a closed atmosphere without coordination and communication. In order for these institutions to work together to achieve the goals set forth for future post­harvest development, some form of alternations or realignment of institutional structures will be forthcoming. In some cases these modifications will be very minor, but in other cases major changes should be considered.

The study team feels that institutional arrangements must of necessity be ad­dressed before any speci fi~ development actions are initiated. It is evident From the preceding sections of this report that development needs exist in the postharvest sector. The manner in which these needs will be addressed within the context of the system depends on the alignment of various institutions, since all development projects must be tailored to fit the strengths and weaknesses of specific institutions.

Relationships Between Institutions and Activities

Coordination of institutions and activities requires correct timing of appro­priate actions by each organization involved in the development effort. This coordination can be improved through effective communication as well as through the elimination of duplicative efforts. In order to illustrate the need for better institutional coordination, the relationships among GSL institutions, and between GSL institutions and the private sector, have been categorized ac­cording to the major activities as proposed in this report.

The GSL institutions which will be working with each other and with the private sector in these activities are the RPRDC, the MRD, PPSA, and the FTRU. The major areas included in this effort are standards and grades, product develop­ment, postharvest technology, price stabilization, and facilitating marketing functions.

The development and implementation of a system of standards and grades must be a cooperative effort involving the RPRDC, the MRD, the PPSA, and the private sector. These institutions will work with each other to ensure that the standards and grades established are applicable to the system and ac~eptable

to those parties involved.

New product development will require input and cooperation from the RPRDC, the FTRU, and the private sector. These three institutions, along with the PPSA, will also be responsible for improving the state of postharvest technology in Sri Lanka.

Producer price stabilization efforts will be the responsibility of the MRD, the PPSA, and the private sector. These same institutions will also work together to increase the viability of facilitating marketing functions in such areas as export as~i8tance.

JJ Previous Pag. Blank

In addition to these five major areas of activity, it will also be useful to address the area of market information. The MRD, the PPSA, and the private sector should cooperate in this area, undertaking such activities as market and price analyses, supply and demand responses, and collection of other types of market data.

The relationships between these GSL institutions and the private sector can best be summarized by the figure on the fol1owing pagEJ. This visual repre­sentation helps to clarify the multidirectional links which must be establish­ed and coordinated among these separate organizations.

Price Stabilization and Buffer Stocks

In order to implement ap integrated policy of producer price stabilization and buffer stock management within both the rice and coarse grain sectors, a new concept in institutional models will be necessary. This institution will be created for the purpose of carrying out certain functions. The functions for which this institution will be responsible are (1) implementing a price support program for the total grain sector including rice, coarse grains, pulses, and oilseeds, (2) developing a buffer stock plan for grains and implementing a sys­tem to store and maintain the necessary grain stocks, (3) developing a plan for the handling and sale of stocks accumulated via the price support program (this would represent stocks in excess of the amounts intended for food reserve pur­poses), (4) assisting in the development of a set of standards and grades for paddy and rice, (5) assisting in the development of a better-defined set of quality specifications for coarse grains, (6) implementing the standards and grades developed for paddy and rice, and the quality specifications for coarse grains, (7) initiating the capability to make sales to private sector proces­sors and marketing firms throughout the country, and (8) working closely with private sector firms to move inventories of grain into private commercial processing and export channels. Although this institution will serve as a supplier of grain to the private sector, it should not become a dominant force in the market. In a normal marketing period the agency should not handle more than 10 to 15 percent of the total commercial market volume. This volume will no doubt vary significantly from year to year due to the normal influences of weather and other environmental factors on production levels.

It must be emphasized that there are costs associated with grain price stabil­ization and buffer stock management programs. These costs could run as high as 10 to 50 percent of the value of GSL-owned inventories. To assess the feasi­bility of creating such an institutional model, the costs need to be weighed against the expected benefits.

The study team proposes a series of possible alternatives from which to create a base for further rationalization of the concept as detailed in Section VII. The sLurly team does not recommend that a new institution dedicated solely to producer price stabilization be created in addition to any current institutions. The alternatives set forth primarily concern the expansion and redefinition of the PMB's role in the agricultural marketing system. The study team proposes that the PMB be modified so as to play a more vital and dynamic role than the role it now occupj as. The PMB contains some of the elemental characteristics required of a producer price stabilization agency. It has purchasing exper­ience, warehouse facilities, and some experience in marketing. The PMB could therefore be the nucleus around which a new institutional model could be constructed.

34

standards and Grades

en EQ) c..n"...., +l c:en >- en 3:"t:lQ)+J >- III"t:l"t:l .r-i U') 1'1U'l3:; .....Ctlr-i 7"l"t"Ill'<I-l Ctl C' C1l III1'1t.::l::J c: ("1"::J7"1ll(3 .r-i 0.C1l ::J"t:l en III IIIl"t"o.C:r-i en ::J 1'1

Ctl Ctl Q) 0.0.HO.r-i CJ en:::J C1l(f'I I-l 0 -0""'1)3"oQ) I-l 1'1 IIIo III1-l+J 0.. I-":::J1'1 ::JCtl Ctl no.3 0."t:l~ "t:l C1lIIIc: 0 l"t";t!Ctl ~ 0 )::01'1'" 1-"C1l+J Ctl lL. :::J IIIo enU'l 0:: III 0.:::J"t:l'-" +J ..... C1l00 '< en::J.-t enen'r-i C1lC1l0.. (J)

Market Analysis FTRU~<--------------------------~) MRD

Supply and Demand Response Feasibility Studies

35

There are basically two alternatives from which to choose when determining the direction to be taken in creating the PPSA. As stated previously, both of these alternatives begin with the PMB as their departure point and use modifi ­cations and additions to arrive at the proposed new agency.

The first alternative is to modify the objectives of the PMB to include the responsibilities for producer price stabilization and buffer stock activities as set forth in the preceding paragraphs. The major advantage of this approach is its inherent simplicity, since the PMB is already an operating entity with an established administrative structure. Therefore, no reorganization will be required.

The major disadvantage to this alternative is the fact that the PMB currently serves the rice industry as a fixed pr ice purchaser of paddy from producers, and a supplier of paddy and rice to the private sector. However, since the PMB operates its own rice mills, it is acting as a direct competitor to the private sector processors of paddy.

The second alternative to be considered is merging the FC and the PMB into one unit. The major advantage here is that such a move would place total respon­sibility for GSL actions concerning the rice sector within one organizational unit. This would allow for better overall planning and management, and better coordination of current FC and PMB functions.

The major disadvanta~le to this alternative is that since this is a matter of combining two separate GSL organizations, each having different objectives, the question becomes one of compatibility. The essential characteristics of each would have to be evaluated as to their strengths and weaknesses and then a final determination could be made on how to proceed with such a merger. This alternative presents the same disadvantage as the first alternative, by having a GSL organization acting as a competitor to the private sector.

Therefore, regardless of the alternative chosen, the rice milling funct ion of the PMB is not totally compatible with the inventory management functinn of a price stabilization and buffer stock agency. The study team recommends that the decision about GSL ownership of rice mills is an imfJortant policy issue that should be addressed in the near future. The GSL needs to carefully study the role that the PMB mills are to play in the rice milling sector. The five alternatives presented here should be studied and evaluated.

1. Leave the six new milling complexes with the newly-created agency.

2. Leave all the mills with the newly-created agency.

3. Create a GSL milling corporation which would be responsible for the operation the six new milling complexes and any others which might be placed under its authority.1

1Any of the older mills moved to a new institution under any option should undergo the technical and economic feasibility study set forth in Section V.

36

4. Create a public stock corporation (with less than 50 percent government ownership) which would be responsible for the operation of the six complexes.

5. Lease the mills to the private sector with or without the option for the newly-created agency to lease back the storage units.

The procedures to be followed for investigatlOl' of these alternatives and rational decision-makin~ are outlined in Section VII. There is much research and study to be done before any decisions can be made on the future of the rice milling sector.

other institutional arrangements in the price stabilization pulicy that need to be assessed are physical facilities, general management, marketing management, inventory management, product quality maintenance, and export assistance. Another area of concern is the need for economic analysis section to work with the MRD and the Division of Agricultural Economics in the DOA. This unit would prepare analyses of appropriate price support levels each year, develop sea­sonal price differentials based on costs of maintaining inventories, and develop a system of premiums and discounts, based on quality standards and grades, to be used in the purchase and sale of grain.

Postharvest Technology

The RPRDC is the logical choice to pursue activities in the area of postharvest technology, since it was developed as an applied research, training, and con­sultancy organization. It contains the essential qualifications for addressing private sector needs in terms of the market being served by different segments of the private sector.

If the status of the PMB is not changed, as discussed in the previous subsec­tion, the current postition of the RPRDC is not conducive to carrying out the series of activities in postharvest technology and private sector development as proposed in SectiOlI V. Since the RPRDC is an appendage of the state-owned PMB, which is a competing organization to the private sector, the status of one of these organizations will have to be changed if the RPRDC is to carry out these proposed activities.

The rationale for a correct institutional arrangement is to (1) increase inde­pendence of action through establishing objectives to be used as guidelines, (2) generate an image of neutrality and imp&rtiality so as to better interface with the private sector, (3) increase the RPRDC's ability to coordinate spe­cific activities with the FTRU, and (4) gain an impartial working relationship with the PPSA. Without these necessary conditions, the RPRDC will never be able to develop strong communications with or address the needs of the private sector.

Three basic alternatives exist for the institutional placement of the RPRDC. The first of these alternatives is to locate the RPRDC within the jurisdiction of the PPSA. This alternative is viable if and only if the rice milling functions are placed outside of the authority of the PPS.l\. If these milling functions remain under the PPSA control, this agency will become a monolithic entity unable to exercise the neceJsary management capabilities. The principal

37

advantage of this approach is the simplicity of action. The administrative structure for this unit already exists, and the transfer of the RPRDC could take place at the same time the PPSA is created.

There are several disadvantages to this alternative. The first is that since the PPSA would contain the core organization of the former PMB, the RPRDC would be afflicted by the PMB's past image of a lack of impartiality, and this will take some time to overcome. Another disadvantage is the fact that RPRDC activities would be secondary in comparison to the main functions of the PPSA. As a result, the needs of the RPRDC would receive low priority. In this institutional position, coordination of activities between the RPRDC and FTRU would be constrained by the fact that each belongs to a different institutional structure.

The second alternative is to create a Postharvest Institute under the Ministry of Agricultural Development and Research which would contain the RPRDC. One advantage to this is a definite impartiality since there are no conflicts of interest. Other advantages are that direct control by objectives can be achieved rather than by subjective influences, and activities would receive a higher priority based on their own value.

The disadvantages of this alternative are the lack of existing administrative framework, and the linkage to the FTRU would be only slightly better than with the first alternative.

The third alternative would be to locate the RPRDC within the DOA. This would allow for impartiality on the part of the RPRDC, and the existing administra­tive structure would be used to full advantage, thereby avoiding the need to develop a new administrative structure for this institution. Other advantages are the direct linkage to the FTRU, since both organizations would housed within the same department. There would also be the possibility of better linkages to producers through the extension service.

There are two major disadvantages to this alternative. First, because the DOA is primarily concerned with production-oriented research, postharvest technology activities may receive less attention than if they were part of an organization devoted to addressing the needs of the postharvest system. This is exemplified by the low priority treatment being received by the current food ~.echnology sect ion in the DOA. Second, within an organization highly devoted to research, such as the DOA, it is often found that research is done simply "for research's sake" rather than being directed by the needs of the system.

Before a choice is made among the above alternatives, there is another factor which should be considered. The choice of the best alternative may prove to be contingent upon the relationship desired between the RPRDC and the FTRU.

If the FTRU, described in the next subsection, is given the responsibility for laboratory development and testing of new food products, the RPRDC, because of its capabilities, needs to assist the FTRU in the development of processing systems as well as supplying technical assistance to the commercial sector for implementation of new food processing operations. Another area in which the RPRDC should support the FTRU is the improvement of the quality of raw com­modities intended for use in new product development.

38

Therefore, based on these considerations, a decision must be made on whether the RPRDC and the FTRU should be located within the same institutional struc­ture in the interest of fostering communications and coordination.

If it is determined that these two organizations should have institutional proximity, the FTRU should be either placed within the PPSA, as described in alternative one, or within a postharvest institute created under alternative two. If no need can be seen for relocating the FTRU, it can remain in its current position as part of the DOA.

Product Development Technology

As has been pointed out in earlier sect ions of this report, the success of production development programs in the rice and coarse grain sectors will depend heavily on the ability of the system to market the resulting products. This will require the development of research institutions in two major areas: (1) product development and processing technology, and (2) market data analysis.

The study team proposes the creation of the FTRU capable of performing the functions described in Section V. This unit should be a combination of the Soybean Food Research Center and the current Food Technology Research Section in the Central Agricultural Research Institute. With the addition of trained personnel and new equipment, the FTRU would be able to carry out research in the following areas: (1) cereal grain utilization, (2) oilseed utilization, (3) legume and pulse crop utilization, (4) coarse grain utilization, (5) human nutrition and food use, and (6) food process engineering. These six areas are interrelated, and research done in one area can be used by scientists working in other are:ls.

Market analysis will be required to support new product development. Market analysis assists in setting priorities as to which commodities have the great­est need for product development research, and this type of analysis helps de­termine the most advantageous ways to market the new products being developed.

The needs in the area of market analysis include (1) the capability to make supply projections for rice and coarse grains by geographic area, (2) the capability to make domestic and export demand estimates for each grain crop, and (3) the capabililty to do market feasibility studies on the ec~nomic

potential of new food processing industries in Sri Lanka.

There are three alternatives which could be used in improving marketing re­search in Sri Lanka. The first alternative would be to expand the Division of Agricultural Economics in the DOA to include a marketing research depart­ment. The second alternative would be to expand the capability of the MRD to carry out a full range of marketing research functions. The third alternative would be to divide the research activities between these two agencies, with the MRD responsible for demand analysis and feasibility studies and the Depart­ment of Agr icultural Economics responsible for the supply response analyses, given its familiarity with production data and trends in each region.

39

SECTION VII

DEVELOPMENT SUPPORT

The development support recommendations included herein are designed to assist the GSL in constructing a basis for future development of the postharvest sec­tors of both rice and coarse grains. These recommendations are based on the recommendations presented in Section V and the alternative institutional ar­rangements proposed in Section VI.

Utilization of the Milling Complexes

If the GSL is to achieve the operational and economic utilization of the mill­ing complexes as described in Section V, the following specific support actions must be carried out.

A bulk storage and milling operations consultant must be employed to assist PMB personnel assigned to the milling complex project. This specialist will guide and assist these personnel in performing a process audit and in making the required alterations to bring the complexes to full operational status. This specialist will be required to have knowledge and experience in the oper­ation of bulk rice storage facilities, the operating of the type of rice par­boiling and milling equipment installed in the complexes, and the adjustment and alteration of all such equipment.

At the same time, a maintenance consultant must be employed to develop a main­tenance program, develop a training program, and implement the training program on a complex-by-complex basis. This specialist must be knowledgeable in the repair and maintenance of modern bulk handling equipment, cleaners, dryers, and the type of parboiling and milling equipment installed in the complexes.

Mldway through the time period covered by these activities, a grain accounting system needs to be installed at every complex. It may be that the bulk stor­age and milling operations consultant can undertake this requirement of system installation and personn~l training. If not, then a third consultant will have to be employed for this purpose.

Finally, after all operational deficiencies are corrected, a cost accountant consultant familiar with grain accounting systems will be hired to assist the PMB in installing a cost accounting system for each milling complex. This con-· sultant will also be responsible for conducting any training necessary for personnel.

This suppurt Bet ion will require hiring foreign consultants to achieve its desired results. The objective is to transfer a limited technology base in an attempt to assure reasonable levels of utilization of these complexes. The Paddy Storage and Processing Project will not achieve its intended purpose unless provisions are made to transfer appropriate skills to the PMB for oper­ating and managing the complexes. The study team recommends that this support requirement be given a high priority. It should precede any new programs in postharvest development.

Price Stabilization and Buffer Stocks

The study team recommends the following process for assisting policymakers in reaching a decision on which institutional actions and improvements in producer price stabilization and buffer stock management are required in the current framework of GSL policy.

A series of "concept" papers should be produced pre~enting a detailed descrip­tion of the different alternatives to be considered by policymakers. These papers should contain recommendations regarding (1) alternative organizational structures, (2) methods of establishing and administering pricing policies, (3) guidelines for grain buffer stock strategies, (4) organizational alterna­tives for the purchasing, storage, and disposal of grain stocks, and (5) facil ­ities and personnel needed to operate the programs. 1 Because marketing anal­ysis is necessary for the rroper operation of price stabilization and buffer stock agencies, the concert papers should also address the current performance of the MRD, as well as suggest needed improvements. 2

Also to be addressed in the concept papers is the question of institutional location of the RPRDC and the FTRU. These concept papers should examine and explain the consequences of placing these organizations under the direction of the various institutional structures.

The task force responsible for preparation of the concept papers should be com­posed of members having expertise in the following areas:

1. A marketing economist with experience in agricultural policy and in mar­keting policy formulation for grain and rice in developing countries.

2. A marketing economist with experience in marketing research, price analy­sis, and supply and demand response estimation.

3. A marketing economist with experience in international trade in rice and coarse grains.

4. An agricultural systems specialist with experience in the design and ad­ministration of public institutions.

5. A storage specialist with experience in quality maintenance techniques for rice and coarse grains, as well as in inventory management systems.

In addition to the above specialists, this task force should include respon­sible individuals from the Ministry of Agricultural Development and Research, the PMB, the FC, the National Food Policy Committee, the Department of Minor Exports, and the private sector.

1The study team recommends that a complete facility audit be undertaken to determine condItions and actual capacities of existing warehouses, how much ca­pacity will be required under different alternative actions, and how to utilize any excess capacity.

2Areas of performance to be evaluated include price analysis, supply re­sponse analysis, and demand analysis. Areas which may need improvement include staffing, training, material resources, administrative structure, and coordina­tion.

42

Postharvest Technology

The development needs in postharvest technology, as specified in Section V, are quite evident. The study team recommends a series of initial activities de­signed to address these needs.

A prerequisite to these aetivities is a policy decision relating to the RPRDC's institutional location as set forth in Section VI. The RPRDC's final institu­tional location will affect its role in postharvest development. Consequently, the end results of the series of initial activities will differ depending on the RPRDC's location.

The first activity would be to assess the RPRDC's strengths and needs through the use of a technical assistance group. This group should be composed of four specialists.

1. A specialist in rice and coarse grain storage practices in Asia, storage research, and postharvest loss assessment methods.

2. A specialist in rice and coarse grain harvesting and threshing techniques in Asia, and research in these areas.

3. A specialist in rice and coarse grain processing methods as well as pro­cessing research.

4. An agricultural economist having a knowledge of postharvest research meth­ods, p~stharvest loss assessment methods, and outreach systems.

These specialists would be expected to work with selected RPRDC staff, the RPRDC advisory body, selected representatives of the institutional structure to which RPRDC is assigned, and several representatives of the private sector. This group should review the RPRDC'S objectives, determine the needs of various segments of the rice and coarse grain sectors, carry out research project iden­t ification and research project planning, establish priorities for research projects and related activities, and evaluate outreach methods (extension, training, and consulting).

The result of this initial activity would be an assessment report which pre­sents the recommended act ions, listed by priority, for achie\ting a set of de­velopment objectives. This report should also addregs requirements for staff­ing, equipment, other material resources, and expected levels of operational funding. This report should be submitted to the proper institutional adminis­trators for their consideration.

The second act ivity would be to clssemble the technical assistance group and other responsible parties for a workshop discussion of the report and its rec­ommendations for increasing the RPRDC I S capabilities. A decision would then be made by the institutional administrators to either proceed with or decline the propsed recommendations.

Product Development Technology

A group of technicians with experience in food technology, new product devel­opment, and food systems research should be assembled to study and report

43

on the feasibility of the development of a food technology organization. This study should include (1) appropriate organizational structure, (2) requirements for basic and applied research on processing and utilizing rice and coarse grains in domestic and export food systems, 0) requirements for nutritional and consumer acceptance evaluation and limited test marketing of new products, and (4) requirements for designing appropriate processing systems to market new food products developed through research.

The study team should include members with expertise in the following areas:

1. A cereal or food sdE'ntist with research experience in cereal grains, oilseeds, and pulses. Administrative or management experience is also required.

2. A home economist with training and experience in human nutrition and food preparation. Experience in the area of consumer preferences, sensory analysis, and test mgrketing is also required.

3. A food processing engineer with experience in cereal grains, oilseeds, and pulses.

This study team would work with the two existing food technology research sec­tions and integrate their research programs into an overall plan. The team should have local counterpart assistance from the DOA, Central Agricultural Research Institute, representatives of state-owned businesses, and representa­tives of the private sector.

The Need for Marketing Studies

Throughout this report the study team has attempted to point out the lack of knowledge that exists in Sri Lanka concerning the marketing of rice and coarse grains. Even though a recent marketing study was conducted in coarse grains (2, 3, 4), the study team views this as preliminary and superficial. Other available studies have failed to address the necessary questions involved in trying to develop the agricultural marketing sector. Therefore, the marketing stuuies recommendp,d by the study team should investigate the following essen­tial elements of the agricultural marketing system in Sri Lanka.

1. The entities involved in the private sector, where they are located, what marketing functions they perform? how many are located in each marketing channel, and the current techncial capability of the processing industry.

2. The marketing channels and the volume of commodity that flows through them.

3. The prices and marketing margins throughout the system.

4. The operating costs and how they relate to marketing margins.

5. The way the marketing system hJS changed over the past decade and the rea­sons for this change.

6. The basic strengths and deficiencies of different marketing channels.

7. The future needs of the system given future supply and demand potentials.

44

Past reports (10, 18) have recommended support for the development of the insti ­tutional capability for undertaking marketing studies and other specific mar­keting research. To date little action has taken place in this regard. The support that has been directed towards such endeavors is lacking in the amount of material and educational resources devoted to this effort as well as the low low priority given to the activity of marketing research.

As a result of these circumstances, the study team recommends two courses of action. The first is to undertake the marketing studies which are critical to the success of the entire development program. These marketing studies are divided into r.wo ~ab~gories. The first category consists of descriptive mar­keting studies by commodity or commodity group. The second is made up of mar­keting studies which specifically determine the marketing needs of specific commodities or commodity groups and describes the manner in which these needs must be acted upon.

The second course of action is to create the ability within the government to conduct marketing studies and marketing research. The studies and research for which capabilities must be developed are descriptive marketing studies, demand and supply response analysis, price analysis, and feasibility analysis in the areas of market feasibility, econcomic feasibility, and financial feasibility.

If the GSL fails to deal with these specific needs and to create the required capabilities, then necessary information will not be generated. If this is the case, any postharvest technology development project or new product development activity will be only partially successful. The lack of total success will be due to the inability to apply resources by priority to particular needs of the marketing system.

45

APPENDIX A

STATEMENT OF WORK

STATEMENT OF WORK

A. Objective:

In view of the post 1978 policy changes and the mandate given to the Paddy Marketing Board on the post harvest development of rice and other field grain crops, this evaluation is aimed at:

(1) reviewing the status of project implementation and ascertaining the optimal use of the resources developed through the Paddy Storage and Processing Project in the grain sector; and

(2) providing recommendations for further GSL institutional and private sector development in grain marketing, specifically in the areas of postharvest practices, product development and coordination among involved public sector institutions and the private sector.

B. Scope of Work:

This consultancy is for a period of four calendar weeks during which two consultants will perform the following tasks:

(1) The grain marketing specialist will review the policies and bCS~SS the economic environment in the postharvest grain sector and provide recommendations to:

(a) optimize the utilization of the paddy storage and milling com­plexes;

(b) better define and improve grain quality standards;

(c) maintain stable prices;

(d) encourage private miller's to modernize/diversify their milling operations; and

(c) promote increased private sector involvement in the processing and marketing of field grains.

(2) The agricultural systems specialist will review the operation of the current grain marketing systems and the capahility of the systems to absorb added produc~ion of these crops and make recommendations in three specific areas:

(0) Concerning the structure and operation of public sector agencies in the area of field grain crops:

i. evaluate the organization and operation of the public sector for the collection, import, stocking and distribution of field grain crops;

ii. investigate the potential for closer integration and coordina­tion among agencies involved in domestic and off-shore procure­ment and distribution of field grain crops; and

49

iii. determine the need for, functions of, and supporting require­ments for a national grains authority.

(b) Concerning quality control procedures, alternatives and programs to improve quality control and reduce postharvest grain losses (qualitative and quantitative):

i. survey postharvest practices and need for improvement;

ii. assess the effectiveness of the Rice Processing and Development Center (RPDC) at Anuradhapura in developing, training and dis­seminating postharvest technology; and

iii. provide recommendations for restructuring RPDC's operations, and programs and supporting requirements for greater effective­ness.

(c) Concerning demand/market expansion for grains:

i. survey the availability of technology for processing and product development;

ii. assess the need for increased institutional capability to pro­mote the development of such technology; and

iii. recommend institutional changes including, if the above assess­ment confirms the need, the broad mandate and functions for a new institute to further develop food technology, with initial emphasis ~n field grain crops.

C. Reports:

While the work assignments are fairly distinct, a "team approach" is en­visaged in preparing a final report at the end of four weeks and the team will be expected to collaborate closely during the consultancy.

50

APPENDIX B

REVIEW OF GSL AGRICULTURAL POLICIES SINCE 1977 AFFEliING THE MARKETING OF

RICE AND COARSE GRAINS

Economic policy in Sri Lanka since 1977 has been characterized by a series of policy initiatives designed to liberalize the functions of the economy. The directions of policy reform have led to a liberalization of international trade policies providing greater freedom in the import and export of industrial and agricultural goods. Internal economic policies have been directed towards the encouragement of investment by the private sector in most major areas of eco­numic activity. The general economic policy has placed a significant emphasis on agricultural development, with the mujor effort directed towards increasing the production of rice. The 1982-86 Investment Program of the Ministry of Finance and Planning states three objectives ~Jr agricultural development: (1) increase income and employment ln rural areas, (2) improve nu~ritional

standards and self-sufficiency, and (3) contribute to export earnings.

This emphasis on agricultural production development is evidenced by government plans which projected the investment in the agricultural sector to be 43.7, 58.7, 57.4, 59.2, and 38.3 percent of total public investment during 1981, 1982, 1983, 1984, and 1985, respectively. Revised projections for 1983 through 1987 announce that development investment in the agricultural sector will be 40.4, 44.4, 40.3, 34.7, 34.4 percent of total public investment for 1983, 1984, 1985, 1986, and 1987, respectively. Even though the revised projections are in some cases substantially lower than the original projec­tions, the commitment to agricultural production development still exists.

Major policy actions which have influenced market~ng in the rice and coarse grain sectors of the agricultural economy are as follows:

1. Beginning in 1977, state sector trade monopolies for most food products were eliminated and the licensing of imports and exports was confined to a minimum. The Fe currently maintains monopoly control only over the importation of wheat.

2. On February 1, 1978, revised programs were introduced for the rationing and distribution of rice and sugar. Full eligibility for the weekly rice ration (one pound of rice free of charge and three additional pounds at 1 Rupee per pounj) was limited to households earning less than 300 Rupees per month. For large households, a graduated income cut-off schedule was introduced. Eligibility for the sugar ration (1.5 pounds of sugar per month at .072 Rupees per pound) was limited to children under 12 years of age in households qualifying for the rice ration.

3. On September 1, 1979, the system of specific food subsidies and rationing was replaced with the food and kerosene stamp system for families with monthly irlcomes of less than 300 Rupees. (The ceiling of 300 Rupees per month applied to families of five persons or less. For each additional family member the ceiling was raised by 60 Rupees, up to a maximum of 750 Rupees). Persons working in the plantation sector were also eligible for the food stamp scheme. Initially, food stamps were issued to approx­imately seven million persons. Holders of food stamps were entitled to use the stamps at cooperatives and other approved retail outlets for pur­chasing rice, wheat flour, bread, sugar, milk products, and dried fish. Kerosene stamps could be used to purchase both kerosene and the above food items; however, food stamps could not be used to purchase kerosene. Food and karosene stamps which were not redeemed could be deposited in a Na­tional Savings Bank account on or before the 15th of the following month.

53

4. The Agricultural Development Authority was created in 1978 to coordinate the development programs of the Ministry of Agricultural Development and Research.

5. The National Food Policy Committee was created in 1979 to serve as a pol­icy evaluation and recommendation group. This committee meets under the chairmanship of the Cabinet Secretary, and the National Planning Division of the Ministry of Finance and Planning acts as its Secretariat. It ap­pears that the majority of questions taken under consideration by the committee deal with changes in policy direction through administrative orders rather than with long-term policy planning.

6. 8eginning in November 1980, a five-step increase in the GPS price of paddy was implemented. This price increase, detailed in Table 6, Appendix F, raised the price of paddy from 33 Rupees per bushel to 62.50 Rupees per bushel.

7. Floor prices for coarse grains were established prior to 1977, as shown in Table 17, Appendix E. Initially only two crops were covered by the floor priceo, but by 1981 floor prices had been extended to include a total of nine crops: corn, sorghum, millet, blat~gram, greengram, cowpeas, peanuts, soybeans, and sesame. Various increases and decreases have occurred in the floor prices, but the rationale for such floor price adjustments is unknown. In 1980, the PMB was assigned the task of supporting floor prices through purchasing actions. The PMB is the sale agency responsible for price support actions.

54

APPENDIX C

STUDY TEAM OBSERVATIONS OF PMB MILLING COMPLEXES

I~J

During a one-week field trip, the study team inspected five of the six PMB 2-ton per hour milling complexes constructed under the USAID Paddy storage and Processing Project. The study team's observations are directed towards con­straints existiny 3t the facilities and their consequent effect on operations when the complexps are completed. Unless these constraints are corrected, they will cause underutilization of available capacity, as well as improper facility operation and poor sanitation practices.

The study team also insp~cted three other PMB facilities. The study team's observations of these facilities are included in this Appendix because some of the practices found at these facilities indicate a very low level of technical and managerial practices. Such practices may ultimately have such a profound effect on the new milling complexes that they will be reduced to the same state of low utilization and disrepair as the silo complex inspected.

PMB Milling Complexes

The milling complexes inspected by the study team are in various stages of com­pletion. The percentage of completion by site is ab follows:'

Weeramunai, Amparai District 90 percent Oluvil~ Amparai District 65 percent SittanJi, Batticaloa District 95 percent GaJnewa, Anuradhapura District 90 percent Kekirawa, Anuradhapura District 20 percent

These complp.Aes have several common defects. 2 The concrete work is very poor. Floors are extremely rough and uneven. Joints between the support walls and floors contain cavities, many of which are quite large. These types of flaws will aggravate the ability to provide sound sanitation practlces which are intended to prevent insect infestations in paddy and rice. The best concrete work was found at the Sittandi complex, although by modern construction stan­dards it is also deficient. The flaws at this site are not as obvious, but still need to be corrected.

The quality of installation of aeration fans in the bulk storage structures varies from unit to unit. Some fan unit installations actually may allow stored paddy to leak into the fan housing and frame. These accumulations of small amounts of paddy would be exposed to moisture and easy infestation by insects, the result of which could be either infestation of recently-stored paddy or reinfestation of fumigated paddy. In addition, there are a few fan installations that may allow rain water to seep into the bulk bl;~8.

The only complex in operation is the one at Sittandi and even this complex is only in partial operation. This facility produces a reasonable quality of

1Estimates of the percentage of completion at all milling complex sites are based on all buildings and equipment being installed and operational. Only then can the facility be fully tested and operate ~s a complete unit according to the original design capacities.

2 Design defects are not addressed by the study tedm because of a lack of quali fications.

57 Previous Page Eknl1t

rice, however not of export grade. 1 Even this facility is operating without using its bulk storage. One of the bulk storage units is being used as a bagged paddy warehouse. Other operational problems include an automatic scale which is out of operation,2 a truck scale which is not calibrated correctly, and a parboiler dryer which suffers from an air restriction due to the leakage of paddy into the fan unit. The total facility has not undergone a process audit and had its deficiencies corrected, and therefore it is not a completely operational facility.

Another interesting aspect of the Sittandi complex operation is the lack of moisture meters. The study team questions how an inexperienced operating c~'ew

can determine the following parameters essential to a successful millin~

operation.

1. The moisture level of paddy being placed into the parboiling units and the effect different levels of moisture in paddy have on the length of time the paddy must remain in the parboiling units.

2. The moisture content of the paddy after leaving the parboiling units, and being dried. How do operators know whether the paddy is at optimum mill ­ing moisture, or at what rate the paddy should be processed through the dryer in order to have an optimum moisture level in the paddy for milling?

The study team was unable to solicit a sound answer for any of the above ques­tions from either the complex operator or the RPRDC.

other operat:~nal problems are evident at all complexes. Many of the elevator leg pits have water in them, either due to seepage or hard rains. This indi­cates the need to do further landscaping of the grounds, sealing the pit walls where possible, and installing sump pumps to keep these pits dry. The filling and unloading systems of the bulk storage facilities have never been tested. The unloading tubes indjcate that bridging of paddy may become a problem. There is no access into the bins for the manllal labor necessary to assist in either unloading the final one-half to one-third of the paddy in the bin unit, or in cleaning the interior bins. 3

The study team could not find that a routine maintenance plan was being used at any of the sites investigated. No plan for stocking repair parts was evi­dent. At the Sittandi site, no millin~ yield records seem to be kept, nor were there any inventory records.

1The operational part of tl~ complex also had adequate sanitation prac­tices.

2The automatic scale at the Galnewa site is also oul of operation. This facility is beginning to mill paddy even though the parboiling unit is still being installed.

3The storage design does not incorporate automatic unloading of all paddy in the bin unit.

58

PMB Bagged Paddy Warehouse, Maha Oya

This warehouse contains 1981, 1982, and 1983 crop paddy. The warehouse struc­ture seems to be i.n reasonably good condition, although not properly secured from bird and rodent damage to stored grain. The quality maintenance of stored paddy in this warehouse leaves much to be desired. Large quantities of dead insects and insect dust were observed on the stacks. The stacks had been sprayed (apparently with Malathion) but no fumigation had been carried out. Live insects were evident. The extremely poor sanitary conditions, such as dirty pallets, stacks of old sacks, and poorly-cleaned floors, can only lead to further insect infestation. A sample of 1982 crop paddy checked by the study team revealed an approximate weight loss of at least 10 percent due to insect infestation.

Silo Complex, Hasalaka

This silo complex was finished in 1978. Apparently due to water seepage problems in the silos, the facility has stored paddy in only one year, 1979. Although the rice mill is being operated there is no evidence of any main­tenance being conducted at this ~acility. Pits contained water, auger con­veyor systems were badly worn and damaged, and the mill area lacked proper sanitation ~ractices. Five thousand tons of storage capacity is literally being wasted at this facility.

Milling Facility

This facility, built in 1952, is operational. Although the facility is old and the milling equipment is outdated, it seems to function fairly well. Sani­tation practices are good. The condition of the buildings and concrete work, due to excellent construction procedures and possibly some competent level of maintenance is good.

59

APPENDIX 0

MJ\~~~6~N~A~~~~i N~R~ri~~~L

\0\

MARKETING SURVEY OF PADDY IN AMPARAI 0ISTRICT IN MAHA 1984

Background & Justification

Present quality specifications followed by PMB in purchase of paddy were set in arbitrarily fashion as established norms were not available for the indust~y.

It has little relation with ability of the farmer to produce this qUclity or the premum rice quality demands of the market.

Further, PMB procedure is to accept what is up to these specifications and to reject the rest. Marketing practices of the private sector is thought to be different from the "accept or reject" procedure of the PMB. We are aware that a more complex relationship between price and quality exist.

A deeper understanding of the market conditions by the PMB becomes imperative if it is to provide guidance and competition to the industry under presen ci.r ­cumstances. The institutional model which was fashioned largely to regulate the market through government policy intervention needs to be gracefully changed as a healthy competition to the private sector and as a leader in the paddy rice industry.

PMB needs to take cognizance of two clear trends which are developing at present.

(a) With increase in paddy production economic feasibility of rice exports and and operational arrangements to produce export quality need to be explored.

(b) Definite consumer preferences for quality rice are emerging in the local rice market, since de-rationing of rice distribution. PMB needs to cater to these requirements.

fo obtain economic advantages to the PMB as well as to guide the industry on a rational basis more marketing res rch information is necessary. Amparai dis­trict was sleeted for study as it traditionally has the biggest marketable sur­plus and further coastal areas of the district have premium quality paddy from which it may be feasible to produce premium quality rice.

Once this information io available it may be possible for PMB to make more ef­ficient commercial decisions in its purchase program as well as to incorporate such a scheme along with management of new USAID complexes which are coming up for commissioning soon.

Objectives of the Study

1. To find out paddy quantities produced and marketed by farmers in Amparai district in Maha 1984.

2. Analyze the marketing channels, time of sale, quality of paddy sold and to find out the relationship between these variables and selling prices.

3. Study whether there is a relationship between quality of paddy produced and postharvest practices followed and identify constraints to wider adop­tion of these practices.

63

Procedure

1. Population will be total farm families in Amparai district. This will be stratified in to valley area and coastal area as wide disparities in pro­duction practices exist between these two agricultural areas. Later on these will be again stratified by size of land holdings once full infor­mation is available.

2. A suitable questionnaire will be designed with the help of ART! and the officials of t~e Department of Statistics so· as to obtain information covered in the objectives of the study.

3. Enumerators will be selected from PMB officials or outside and five ADO at Amparai will function as supervisory officers. Information from sample farms will be collected by enumerators by meeting them periodically during the season. Statistics Division of the PMB will primarily direct the survey.

4. Paddy samples collected will be analysed at RPRDC.

Cost of Survey

(a) 5 Supervising Officers Rs.250/- month 2,500 (b) Enumerators Rs.60/- day 60,000 (c) Head Office Staff (travelling subsistance etc.) 5,000 (d) Miscellaneous 6,500

75,000

Implementation Schedule for the Survey

Activities Period

Defining of objectives and preliminary operations 2nd week Dec. 1983­4th week Dec. 1903

Preparing Questionnnaire 4th week Dec. 1983­1st Wp.r1< Jan. 1984

Pr5.nting Questionnaire 2nd week Jan. 1984

Selection of Enumerators 1st week Jan. 1984­2nd ,"leek Jan. 1984

Training of Enumerators 3rd week Jan. 1984

Pre-testing 3rd week Jan. 1984

Re-drafting of the Questionnaire 4th week Jan. 1984

Designing of the sample 3rd week Dec. 1983­4th week Dec. 1983

Sample Selection 1st week Jan. 1984­2nd week Jan. 1984

64

Identification of Farmers

Designing of tables coding and editing etc

Final work if any before the survey

Survey

First Visit

Second Visit

Third Visit

Fourth Visit

Fifth Visit

Reporting

First Visit

Second Visit

Third Visit

Fourth Visit

Fifth Visit

Data Editing

Tabulation

Anaysis of the data

Report Vlriting

Typing, duplicating, drawing of diagrams etc

Final Report

65

3rd week Jan. 1984­4th week Jan. 1984

4th week Jan. 1984­1st week Feb. 1984

2nd week Feb. 1984

3rd week Feb. 1984­4th week Feb. 1984

1st week Mar. 1984­2nd week Mar. 1984

3rd week Mar. 1984

4th week Mar. 1984

1st week Apr. 1984­2nd week Apr. 1984

1st week Mar. 1984­2nd week Mar. 1984

3rd week Mar. 1984­4th week Mar. 1984

4th week Mar. 1984­1st week Apr. 1984

1st week Apr. 1984­2nd week Apr. 1984

3rd week Apr. 1984­4th week Apr. 1984

3rd week Mar. 1984­2nd week Mar. 1984

3rd week Mar. 1984­4th week May. 1984

1st week May. 1984­2nd week Jun. 1984

1st week May. 1984­4th week Jun. 1984

1st week Jun. 1984­4th week Aug. 1984

APPENDIX E

DA1A lABLES

Table 1

Paddy Production (million bushels)

Production Season Year Maha Yala Total

1972 42.3 20.1 62.4 1973 .!:-2.0 20.9 62.9 1974 52.6 24.1 76.7 1975 34.5 20.9 55.4 1976 42.3 17.8 60.1 1977 54.8 25.6 80.4 1978 61.6 29.0 90.6 1979 66.8 25.1 91.9 1980 69.7 32.5 102.2 1981 72.9 33.9 106.6 1982 1983 1984

65.3 86.51

106.02

38.0 39.51

103.3 126.01

1preliminary estimates.

2preliminary forecast.

Source: Paddy Marketing Board

Table 2

Rice Imports (MT)

Year Imports

1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983

265,768 343,113 301,810 459,297 425,044 542,448 169,193 211,518 189,450 157,032 '160,931 100,000

Source: Paddy Marketing Board

69

Table 3

Paddy Marketing Board Procurement

(bushels)

Production Season Year Maha Yala

1972 19,229,897 7,123,883 1973 18,922,270 3,991,827 1974 15,225,983 5,646,925 1975 8,641,374 2,937,416 1976 10,677,419 2,198,041 1977 19,121,273 5,1l 33,900 1978 23,878,442 3,468,698 1979 22:253,405 3,685,787 1980 10,090,777 39,969 1981 6,066,228 51l,896 1982 3,378,288 639,688 1983 14,997,152 497,738

Source: Paddy Marketing Board

Table 4

Paddy Marketing Board Sales of Rice and Paddy

(MT)

Rice Food Open

Year Commissioner Market

1972 422,401 1973 342,585 10,558 1974 263,188 7,520 1975 198,373 5,808 1976 1B5,529 4,035 1977 263,387 3,172 1978 259,075 4,492 1979 237,400 16,095 1980 85,454 54,958 1981 19,388 63,489 1982 3,991 45,237 1983 6,541 76,051

Annual Purchases as a Percentage

Total of Production

26,353,774 42.2 22,914,097 36.4 20,872,908 26.3 11,578,790 20.9 12,875,460 21.4 24,555,173 30.5 32,347,140 35.7 25,939,192 28.2 10,130,746 9.9 6,121,124 5.7 4,017,976 3.9

15,494,890 12.3

Paddy Food Open

Commissioner1 Market

189,923 198,682 11,493

52,519

1From May 1978 to June 1980, the PMB delivered paddy in addition to rice to the FC.

Source: Paddy Marketing Board

70

Table 5

Projected Rice Consumption Levels (1000 MT)

Year Borsdorf Premakumar Jiron Jiron Jiron

1978 1306.7 1919 1335.0 1980 1363.8 1981 1392.3 1982 1421.2 1903 1450.9 1530.0 1503.4 1707.9 1530.4 1984 1481 .1 1550.0 1528.9 1736.9 1588.6 1985 1511.9 1570.0 1555.4 1764.7 1648.9

Table 6

Guaranteed Price for Paddy

From To Rupees

per Bushel

1948 August 1951 September 1952 November 1967 November 1972 February 1973 October 1973 March 1974 July 1974 November 1977 November 1980 January 1981 September 1981 March 1983

July 1951 August 1952 October 1967 October 1972 Februr"y 1973 Septer,ot".Ier 1973 March 1974 July 1974 November' 1977 November 1980 January 1981 September 1981 March 1983

Source: Paddy Marketing Board

71

8.00 9.00

12.00 14.00 15.00 18.00 25.00 30.00 33.00 40.00 50.00 52.50 57.50 62.50

Table 7

Average Open Market Farm Gate Prices

Year

1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983

Source:

Paddy

Rupees per Bushel

14.81 26.22 45.06 43.64 37.45 35.16 40.70 41.94 51.00 67.21 71.19 70.80

Department of Census and st atistics

Year

1976 1977 1978 1979 1980 1981 1982 1983 1984

Source:

Table 8

Paddy Marketing Board Storage and Milling Capacity

Storage Capacity

(million bushels)

15.0 15.0 16.5 19.0 19.8 20.3 20.9 21.1 22.0

Paddy Marketing Board

Milling Capacity

(MT per year)

99,840 124,800 163,200 170,880 170,880 168,960 159,360 159,360 215,040

72

Table 9

Paddy Marketing Board Quantity Losses

Percentage Year Loss._---------- ­1972 1.50 1973 0.27 1974 0.42 1975 1.13 1976 0.79 1977 0.89 1978 1.77 1979 1.50 1980 1.06 1981 5.60 1982 4.00

Source: Paddy Marketing Board

Table 10

Paddy Marketing Board Rice Mills

Type Capacity Number MT

USAID Complexes 2 TPH 6 57,600 Silo Complexes 2 TPH 4 38,400 Others 3 TPH 6 86,400 Others 2 TPH 1 9,600 Others 1 TPH 11 21,120 Others 1/2 TPH 2 ......1t22O

Total 30 215,040

Source: Paddy Marketing Board

73

Table 11

Paddy Marketing Board Specifications for Paddy

1. Unmixed Ordinary Paddy

a. Moisture content less than 15 percent b. Extraneous matter less than 1 percent by weight c. Refraction less than 9 percent by volume d. Mixture of other varieties of paddy less than 10 percent e. Grain to be free of insects, insect damaged grains, and madi grains

2. Mixed Paddy

a. Moisture content less than 15 percent b. Extraneous matter less than 1 percent by weight c. Mixture of other varieties of paddy more than 10 percent d. Refraction less than 9 percent by volume e. Grain to be free of insects, insect damaged grains, and madi grains

3. Varieties of Unmixed Paddy

Unmixed ordinary paddy of the specifications given above will be grouped according to the length of the paddy grains and color of the rice kernel as follows: short white, short red, long white, long red.

Source: Paddy Marketing Board

74

Table 12

Paddy Marketing Board Specifications for Rice

1978

a. Moisture content b. Degree of polish c. Broken d. Paddy grains e. All rice (raw bnd parboiled) should be

free from any offensive smell, paddy husk, foreign matter, grit, sand, dust, etc.

1979

a. Moisture content b. Degree of polish c. Broken d. Discolored grains e. Undermilled grains f. Paddy grain g. Impurities h. All rice (raw and parboiled) should be

free from any offensive smells paddy husk, foreign matter, grit, sand, dust, etc.

1981

a. Moisture content b. Degree of polish c. Broken d. Discolored gr3ins e. Undermilled grains f- Paddy grain g. Impurities h. All rice (raw and parboiled) should be

free from any offensive smell, paddy husk, foreign matter, grit, sand, dust, etc.

Raw Parboiled Rice Rice

15~~ 15% 40% 75% 30% 12% 50 per lb 50 per lb

15% 15% 10m~ 9m~

35~~ 12% 1m~ 10% 1m~ 10% 50 per lb 50 per lb

1% 1%

14.5~~ 14. 5~~ 10m~ 90%

35% 12% 1m~ 1m~

1m~ 10% 50 per lb 50 per lb

,010'0' 10

'

75

Table 12 (continued)

Raw Parboiled Rice Rice

1982

a. Moisture content b. Degree of polish c. Broken d. Undermilled grains e. Paddy grain Fe Admixture h. All rice (raw and parboiled) should be

free from any offensive smell, paddy husk, foreign matter, grit, sand, dust, etc.

1984

a. Moisture content b. Degree of polish c. Broken d. Discolored grains e. Undermilled grains f. Paddy grain g. Admixture h. Impurities i. All rice (raw and parboiled) should be

free from any offensive smell, paddy husk, foreign matter, grit, sand, dust, etc.

Source: Paddy Marketing Board

14~~

75~~

35% 2 1/2~~

55 per kg 1m~

14% 75% 35% 1m~

2 1/2~~ 55 per kg 1m~

1%

14% 75% 12~~

2 1/2% 55 per kg 10%

14% 75% 12% 1tJ~~

2 1/2% 55 per kg 1m~

1%

76

Table 13

Cost of Rice Milling and Handling Budgeted Costs Fd.>ruary 1979

Rupees Cost Component per 100 lb

Variable Costs

GPS price 87.00 Transport charges .60 Handling .2963 Commission 1.60 Interest .8926

Fixed Costs

Salaries to store personnel .6543 Repairs to stores .1371 Running expenses of stores .0780 Depreciation: Gunnies .8696

Weighing machines .0467 Furniture/fixtures .1204

H/O, R.O., RPRDC expenses 1.0555 Salary increases .1341

Total 98.4846

Milling costs Parboiled Raw

Out turn 68~o 66~o

Transfer price 100 lb paddy 93.48~6 93.4846 Milling hire 6.00 4.50 Transport: Paddy .6696 .6696

Rice .4554 .4420

Total 100.6096 99.0962

Cost per lb of rice 1.4795 1.5015 Profit margin .01 .01

Transfer price per lb 1.4895 1.5115 Transfer price per measure 2.9790 3.0230

Transfer price per MT 3283.75 3332.25

Source: Paddy Marketing Board

71

Table 14

Cost of Rice Milling and Handling Budgeted Costs February 1984

(Rupees)

Cost per MT of Paddy Cost Component

Variable Costs

GPS price Transpor.t charges Commission stamp duty Handling Interest Driage

Fixed Ccsts

staff remuneration Depreciation Other expenses Inter-district transfer

Milling costs

Milling hire Transport of paddy (store to mill) Tranport of rice (mill to market)

Cost of producing 680 kg parboiled rice Cost of producting 1 MT of rice Cost of gunnies Profit margin BTl

Source: Paddy Marketing Board

2,990.00 25.00 69.00 1.50

18.00 93.10 31.96

3,228.56

87.00 64.59 47.96 30.00

229.55

143.30 64.00 17.00

224 .. 30

221 .l~3

100.00 239.03

2,990.00 3.015.00 3,084.00 3,085.50 3,103.50 3,196.60 3,228.56

3,315.56 3,380.15 3,428.11 3,458.11

3,601.41 3,665.41 3,682.41

3,682.41 5,415.31 5,636.74 5,736.74 5,979,77

78

Table 15

Paddy Marketing Board Quality Specifications for Coarse Grains

February 198~

Corn

1. Should be well matured, not containing more than 1 percent incomplete, small, or immature grains.

2. Should be well dried. 3. Free of damaged and discolored grains by moisture and water of damaged by

fungi. 4. Should not be infested with or damaged by insects. 5. Extraneous matter should not exceed 0.5 percent by weight.

Blackgram

1. Should be well matured and black in color. 2. Should not exceed 2 percent of brown or off-colored seeds, immature seeds,

broken and shelled seeds. 3. Moisture should not exceed 12 percent. 4. Extraneous matter such as shells, sand, stones, and dust should not ex­

ceed 1 percent. 5. Should not be infested with or damaged by insects, eggs, and larvae.

Peanuts

1. Outer shell should be intact. 2. Should be well matured and well dried. 3. Should not be damaged by insects or water or infested with insects. 4. Free of impurities. 5. Empty seeds should not exceed 10 percent.(this could be determined as

follows: If 20 pods of 3 segments and 25 pods of 2 segments are shelled, the yield should be 54 or 45 seeds, respectively).

Soybeans

1. Should be well filled, fully matured and well dried. 2. Should not be damaged by insects or water. 3. Free of discolored grains. 4. Extraneous matter should not exceed 0.5 percent. 5. Broken grains and immature grains should not exceed 1 percent.

Sesame

1. Should be fully matured and well dried. 2. Free of insects and insect eggs. 3. Extraneous matter should not exceed 1 percent in weight (care should be

exercised to see that sand or stones similar to se~ame seeds in size and other extraneous matter do not exceed 1 percent).

4. Should not be damaged by insects or water.

79

Table 15 (continued)

Cowpeas

1. Should be well matured and well dried. 2. Extraneous matter such as dust, sand, and plant materials should not

exceed 1 percent. 3. Immature and discolored seeds should not exceed 1 percent. 4. Free of insects, insect eggs, and insected attacked seeds. S. Should not be damaged by water, moisture, or fungi.

Greengram

1. Should be well matured and well dried. 2. Extraneous matter such as dust, sand, and pl~nt materials should not

exceed 1 percent. 3. Immature, discolored, black and brown seeds sholJld not exceed 1 percent. 4. Free of insect, insect eggs, and insect attacked aeeds. S. Should not be damaged by water, moisture, and fungi.

Millet

1. Should be fully matured and well dried. 2. Should not be damaged by insects or water. 3. Extraneous matter should not exceed 2 percent (care should be exercised

to see that sand of the same size as millet seeds and other extraneous matter do not exceed stipulated 2 percent).

80

Table 16

Paddy Marketing Board Purchases of Coarse Grains

(MT)

Black- Soy- Green-Year Corn gram beans Sorghum gram Sesame Peanuts Cowpeas-1974 4 46 1975 11,964 790 1976 10,876 72 1977 15,407 7,324 95 1978 7,333 6,695 410 36 1979 125 288 2 1980 405 14 312 1,968 181 19 1981 782 75 3 8,189 20 1,532 1982 392 579 288 1,249

Source: Paddy ~larketing Board

81

Table 17

Floor Prices for Coarse Grains (Rupees per MT)

Commodity 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984

Corn 794 2165 1869

2066 1968 1869 1673 1476

1234 1234 1234 1234 1653

1650 1980 2000 2150 2300

2500 2750 3000

Q) N

Sorghum

Blackgram

684 2165 1869

2066 1968 1869 1673 1476

1234 1476

5622 2558

1476

4408 3967

1476 1279

3523

1320

3520

1320 2000

3950 4000

4000 4000 4500

Soybeans 5510 5510 4400

4400 4950

6600 7000 7500

7000 6000 6000

Peanuts 4959 4950 4950 6000

6000 6000 6000

Sesame 4950 6600

6600 7000

6000 6000 6000

Cowpeas 4750 5500 7500 5500 5500

Greengram 6600 6600 6750 7000 7500

Millpt 2000 2750 2750

Source: Paddy Marketing Board

Table 18

Annual Acreage and Production of Coarse Grains

Corn Millet Sorghum Cowpeas Blackgram Year Acres Production Acres Production Acres Production Acres Production Acres Production

(1000 MT) (1000 MT) (1000 MT) ( 1000 MT) (1000 MT)

1960 36,643 9.4 88,387 18.3 3,687 1.1 8,000 0.9 1961 32,470 10.2 70,982 18.1 4,069 1.4 7,260 1.3 1962 28,380 8.5 57,326 14.5 2,786 1.0 5,467 1.4 1963 36,866 11.7 71,053 19.4 4,598 1.0 10,783 2.4 1964 27,464 9.9 53,653 14.6 2,806 0.8 9,097 2.3 1965 29,408 10.6 64,635 17.1 4,008 1.4 9,374 2.4 1966 30,433 10.4 55,084 17.5 3,435 1.3 10,287 2.6 1967 35,322 17.9 55,186 14.6 2,813 1.1 14,495 2.9 i968 4U,663 12.7 52,775 13.8 2,265 0.7 10,076 2.5

Q \oN

1969 1970

49,500 .44,304

17.7 14.6 52,074

16.2 13.5

3,021 2,405

0.8 0.5

9,770 2.8

1971 63,541 16.4 52,303 12.6 1,933 0.6 2,387 0.5 1972 40,165 13.8 13 ,575 4.3 196 0.1 1,147 0.5 1,220 0.4 1973 59,685 13.6 21,023 5.0 698 0.3 3,310 0.6 1,122 0.4 1974 95,128 23.8 71,5 /i7 15.7 5,404 3.1 7,395 2.4 3,439 0.7 1975 98,970 34.6 66,289 20.6 9,238 6.3 21,578 7.6 5,026 1.0 1976 75,092 31.2 49,019 15.5 2,446 1.7 47,516 12.0 12,579 2.5 1977 96,770 42.0 63,245 23.3 3,431 2.0 74,537 21.3 34,279 11.7 1978 70,718 33.8 43,605 14.7 1,465 0.5 68,210 22.6 34,743 8.7 1979 58,333 26.0 26,770 10.8 236 0.1 74,791 18.7. 21,590 6.0 1980 59,701 31.4 19,841 6.7 239 0.1 63,113 23.5 20,652 5.5 1981 69:uQ3 35.3 32,802 11.7 275 0.1 94,271 39.4 24,843 7.4 1982 83,993 38.2 35,038 11.7 127 0.1 84,169 33.5 23,612 8.2

Table 18 (continued)

Greengram Peanuts Soybeans Sesame Year Acres Production Acres Production Acres Production Acres Production

(1000 MT) (1000 MT) (1000 MT) ( 1000 MT)

1960 11,495 2.1 2,326 0.5 35,475 8.7 1961 i,016 2.0 2,716 0.5 26,086 5.5 1962 7,469 2.4 2,271 0.4 23,981 4.0 1963 13,156 2.9 4,906 0.8 42,224 6.9 1964 9,582 2.6 7,340 2.0 38,461 . 6.9 1965 17,460 4.7 8,008 1.2 27,305 6.3 1966 12,621 2.6 10,840 0.9 26,171 4.7 19li7 10,362 2.6 8,678 1.7 31,949 6.8 19f8 10,304 2.6 16,946 2.8 33,635 6.8 1969 11,148 2.8 12,843 2.2 7.5 1970 9,786 1.9 13,235 1.7 29,626 5.6

CD J:::

1971 1972

6,054 7,053

1.3 1.4

12,697 11,950

4.9 5.5 116

28,237 14,678

4.4 5.2

1973 13,038 3.0 15,352 5.7 437 0.2 16,928 2.9 1974 26,417 5.9 19,078 7.5 3,242 1.0 32,102 5.0 1975 22,866 6.0 19,209 7.6 2,818 1.2 31,422 6.3 1976 20,667 5.1 16,615 6.1 1,780 1.0 46,938 8.6 1977 30,509 7.8 16,012 5.7 2,502 1.1 33,464 7.4 1978 30,150 8.3 20,457 7.5 4,770 2.3 41,952 10.0 1979 30,124 9.7 12,484 5.4 3,016 1.3 41,292 17.2 1980 35,076 12.9 23,566 14.1 2,696 1.1 77,851 23.6 1981 44,912 18.9 29,807 14.5 5,466 2.4 61,934 14.0 1982 51,379 17.2 35,570 ~3.8 20,205 10.0 80,214 23.3

Source: Baird et. a1.

Table 19

Open-Market Farm Gate Prices of Coarse Grains (Rupees per kg)

Year Corn Millet Sorghum Cowpeas 8lackgram Greengram Peanuts Soybeans Sesame

CD VI

1967 1968 1969 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982

0.45 0.46 0.53 0.44 0.48 0.54 0.67 1.80 1.53 1.10 1.13 1.28 1.49 1.66 2.15 2.78

0.56 0.58 0.61 0.52 0.50 0.55 1.37 2.66 1.96 1.41 1.35 1.17 1.64 2.18 3.29 3.55

0.53

0.45 0.44 0.73 0.45 2.47 2.58 1.56 1.85 1.02 1.01

0.58 0.60 0.61 0.54 0.42 0.99 1.44 3.06 3.48 1.08 3.35 3.83 4.21 4.51 5.89 7.14 0.00

0.75 1.06 1.01 0.92 0.95 2.61 3.67 4.54 5.63 4.96 5.22 4.99 5.32 7.21 8.73 9.52

1.63 3.69 1.87 3.53 1.83 2.93 3.75 5.55 6.45 6.60

12.21 11.23 11.77 14.42 18.56 12.93 0.00

1.05 1.15 1.05 1.09 1.23 1.53 2.67 3.61 3.80 5.05 5.23 6.50 8.99 8.37 7.55 8.19

Sourct.: 8aird et. a!.

Table 20

Research Division StAff Department of Agriculture

Research Area Rice

Ph.D. M.Sc. Other Crops

Ph .0. M. Sc. Others

Ph.D. M.Sc.

Plant breeding 3 1 2 3

Agronomy 1 10 4 15

Soils 3 4 2 6

Entomology 1 3 3 2

Plant pathology 2 2

Plant physiology 1 1

Microbiology 1

Horticulture 3

Food techllo1ogy 6

Agroclimatology 2

Agr icultural engineering 2

Biometry 1

Total 11 18 15 29 0 11

Source: Baird et ale

86

Table 21

Land Use Patterns in Sri L.mka 1981-82

Acreage Acreage Total Percent Planted Planted Acreage of Total

Crop Maha Season Yala SeaRon Planted Acreage

Rice 1,401,693 684,318 2,086,011 74.6 Corn 82,935 1,423 84,358 3.0 Millet 32,643 2,704 35,347 1.3 Cowpeas 51,949 32,519 84,468 3.0 Greengram 32,256 19,963 52,219 1.9 Blackgram 22,232 1,380 23,612 0.8 Peanuts 27,763 7,856 35,619 1.3 Soybeans 16,806 3,399 20,205 0.7 Sesame 9,994 70,321 80,315 2.9 Chilies 36,446 32,867 69,313 2.5 Red onion 9,647 10,634 20,281 0.7 Bombay onion 116 305 421 M'mioc 93,614 34,157 127,771 4.6 Sweet potato 15,473 5,986 21,459 0.8 Other 37,173 17,125 54,298 1.9

Total 1,870,740 924,957 2,795,697 100.0

Source: Paddy Marketing Board

Table 22

Exports of C~arse Grains (MT)

Commodity 1979 1980 1981 1982

Corn r~illet1 l3lackgram Peanuts Sesame Castor

6.1 3,241

1,154 1,491

12,543 688

1,379 1,055 1,692

11,848 1,474

3.2 1,238

1,310 2,180

12,023 1,330

661 642

1,078 23,563 2,915

1Yellow millet.

Source: AgroSkills Ltd.

87

~PPENOl)( f

REfERENCES

(1) Agroskills Ltd., Case Studies of Two Periodic Rural Markets at Alawwa and Maho, Kurunegala District, Sri Lanka, FAO/DSE: Rural Market Centre DeveJopment Programme in Asia, Ministry of Plan Implementation.

( 2) Agroskills Ltd. , Subsidiary Food Crops Marketing Study, Volume I, October, 1983.

(3) Agroskills Ltd., Subsidiary Food Crops Marketing Study, Volume II, Technical Papers, October, 1983.

(4) Agroskills Ltd., Subsidiary Food Crops Marketing Study, Volume III, Yala Survey, November, 1983.

(5) Arthur D. Little International Inc., Developing Sri Lanka's Private Sector and Its Investment Opportunities, Volume I, Summary of the Rep~rt,

August, 1982.

(6) Baird, Guy B. et al., Diversified A riculture Research Pro'ect, 383-0058 Project Design Team Report, USAID C' ~mbo, December, 1983.

(7) Bal, Satish, Operation and Maintenance of Modern Rice Milling Complexes, Paddy Marketing Board, June, 1983.

(8) Bal, Satish, PMB/USAID Program, Rice Processing Training Manual, Rice Processing Research and Development Center, June, 1983.

(9) Borsdorf, R., and C. Hugo, Future Supply Potentials and Facility Require­ments, Government Sector of the Sri Lanka Rice Industry, Food and Feed Grain Institute, Kansas State University, September, 1978.

(10) Borsdorf, R., Anderson, D., and D. Anderson, Recommended Support for Grain Policy Development and Implementation in Sri I_anka, Food and Feed Grain Institute, Kansas State University, March, 1979.

(11) Breckenridge, C., A Study of C!:iteria for the Estab~ishment of Grades and Standards for Paddy and Rice in Sri Lanka, Res£ 'rch Bulletin 1/73, Paddy Marketing Board, 1973.

(12) Breckenridye, C., Existing Grades and Standards for Paddy and Rice and Recommendations for Sri Lanka, 1975.

(13) Cassam, Mohamed and Charles L. Newman, Sri Lankan Rice Industry Prospects and Opportunities: International Markets for Rice and the Export Potential for Sri Lankan Rice, Processing of Rice and Rice By-Products: Improvements and Pos~tbilities, Ronco Consulting Corporation, October, 1983.

(14) Corbett, G. G., and H. Creupelandt, Sri Lanka, Grain Marketing and Storage ~tudY,for Coarse Grains, Pulses, and Oilseeds.

(15) De Silva, Mervyn D., Rural Markets Serving Small Farmers in Sri Lanka, FAO/DSE: Rural Market Centre Development Programme in Asia, Ministry of Plan Implementation.

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(16) De Soyza, Tissa, Identification of Constraints to the Modernization of the Paddy-Rice System in Sri Lanka, USAID!Colombo, September, 1982.

(17) De Soyza, Tissa, Policy Changes that 1m act on Padd Marketin Board's Requirements of Procurement, Storage, and Milling, USAID Colombo, January, 1983.

(18) Food and Agriculture Organization, Support to the National Food Policy Committee, Sri Lanka, October, 1979.

(19) Food and Nutrition Policy Planning Division, Evaluation Report on the Food Stamp Scheme, Ministry of Plan Implementation, 1982.

(20) Gassie, Edward W., Development of a Training Program within the Paddy Marketing Board in Sri Lanka, Louisiana State University, September, 1980.

(21) Gavan, James D., and Indrani Sri Chandrasekera, The Impact of Public Foodgrain Distribution on Food Consumption and Welfare in Sri Lanka, International Food Policy Research Institute, December, 1979.

(22) Goldman, Richard, and Peter Timmer, Th~ Scope and Limits of Food Price Policy in Sri Lanka, Ministry of Finance and Planning, June, 1982.

(23) International Food Policy Research Institute, The World Rice Market: Structure, Conduct, and Performance, June, 1983.

(24) Jayawardena, W.R.M.P., An Economic Analysis of the Cost of Milling Paddy in Sri Lanka, A Preliminary Report, Louisiana State University, September, 1983.

(25) Jiron, R., Appendix I, Further Analysis on Rice Consumption, Ministry of Finance and Planning, September, 1983.

(26) Lefes, William S. et al., Mid-Term Evaluation, Paddy Processing and Storage, Sri Lanka (383-T-017), USAID!Colombo, March, 1980.

(27) Marapone, D.M.B., Food Marketing Systems in Sri Lanka, Paddy Marketing Board, January, 1982.

(28) Munasinghe, B.S.L., Post Harvest Losses in Paddy/Rice, Rice Processing and Development Center, June, 1979.

(29) Munasinghe, B.S.L., Report on the Traveling Workshop for the Preparation of Research Develo ment, Trainin , and Information Pro rammes for the Prevention of Food Losses Region of Asia and the Pacific ~ Rice Processing and Development Center, March, 1980.

(30) Nanayakkara, Upali, Report to the Consultative Committee on Trade and Shipping in Regard to the Question of Developing the Paddy-Rice Industry, Marketing Division, Agricultural Development Authority, January, 1984.

(31) National Science Council, Post Harvest Food Losses In Sri Lanka, Report of a Workshop 11-16 February, 1980.

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(32) Paddy Marketing Board, Paddy storage and Processing Project, Proposal for Revisions, January, 1981.

(33) Paddy Marketing Board, Paddy storage and Processing Project, Annex to Training Proposal, August, 1981.

(34) Paddy Marketing Board, Sri Lanka Paddy storage and Processing Project Review and Update as at 30 June, 1982, June, 1982.

(35) Paddy Marketing Board, 1982 Statistical Bulletin, November, 1983.

(36) Paddy Marketing Board, Draft Cop : GSL/USAID Final Evaluation Re ort Paddy Storage and Processing Project 383-0041 , February, 1984.

(37) Premakumar, V.P., RiCe Self Sufficiency in Sri Lanka, USAIO/Cclombo, April, 1983.

(38) Rice Processing and Development Center, The Kandalama Project, April, 1978.

(39) Rice Processing Research and Development Center, Annual Report, 1982.

(40) Sanmugam, f., and S.M.r. Senanayakl f Prospects for Expansion in the Production of Coarse Grains and Grain Legumes, Agrarian Research and Training Institute, 1982.

(41) Traylor, Harlon D., An Economic Analysis of Pricing Decisions for Purchasing Under the Tender System by the Paddy Marketing Board During the 1981 Maha, Louisiana State University, March, 1981.

(42) Traylor, Harlan D., Sri Lanka Paddy Storage and Processing Project, Final Report of the Contractor for Technical Assistance, Louisia~a State University, March, 1982.

(43) Ulsacker, Norman, dnd Richard Newberg, A Review of Reeelll Agricultural Developments in Sri Lanka, USAID/Colombo, November, 1981.

(44) USAID, Sci Lanka - Paddy Storage and Processing Loan, US~tD Project Paper, June, 1976.

(45) Wickramanayake, V.E.A., and H.E.M. Perera, Report on the Survey of Storage Losses, Research Bulletin 2/75, ~addy Marketing Board, 1975.

(46) Wickramanayake, V.E.A., and J.E. Wimberly, The Effect of Time of Harvest on Field Yields, Millin Outturn and Qualit of Rice f Research Bullet~n 4 75, Paddy Marketing Board, 1975.

(47) WickramanayAke, V.E.A., Grades and Standards for Paddy and Rice in Sri Lanka, RPDC Paper 4/77, RIce Processing and Development Center, July, 1977.

(48) World Bank, Sri Lanka: Key Development Issues in the 19808, Volume I: The Medium Term Dev'3Iop.nent Program, May, 1980.

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(49) World Bank, Sri Lanka: Key Development Issues in the 1980s, Volume II: Agricultural Producer Incentives, May, 1980.

(50) World Bank, Sri Lanka: Policies and Prospects for Economic Adjustment, May, 1981.

(51) World Bank, Sri Lanka: An Interim Assessment of Experience and Priorities_, May, 1983.

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