Sri Lanka Export Market Information Development Project

StrawberryExport Market Profile

by:

Samuel R. Daines, Team Leader

Submitted by:

SRD Research Group Inc.880 East 1800 NorthLogan, Utah 84321

Submitted to:

Market Development UnitEmployment, Investment and Enterprise Development Division

Mahaweli Authority of Sri Lanka8th Floor, UDA Building

2 Galle RoadColombo 4, Sri Lanka

and

Private Sector OfficeU.S. Agency for International Development

Mission to Sri Lanka44 Galle Road

Colombo 3, Sri Lanka

December 15, 1988

Samuel R Daines Research Group Inc.

Table of ContentsIntroduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 1

A. Brief Overview of an I1Iustrative Strawberry Export Enterprise 1

B. Seasonal Supply & Demand for Fresh Strawberries in Major Export Markets 21. West German Market 22. United Kingdom 43. Japanese Market 54. Switzerland and Other European Markets . . . . . . . . . .. . 6

C. Costs of Production . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

D. Cost Competition in Major Markets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111. West German Market 112. U.K. Market 113. Japanese Market 11

E. Seasonal Wholesale Prices and Profitability 121. West German Market 122. U.K. Market 153. Japanese Market 18

F. Recommended Varieties. . . . . .. . 21

G. Potentials and Constraints on Strawberry Exports from the Mahaweli ..... 211. Post Harvesting Techniques. . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . 212. Year-Round Irrigating 213. Production Techniques and Training 224. Soils 235. Export Cooling and Packing Infrastructure 236. Refrigerated Trucking 237. On-Farm Irrigation Infrastructure 238. Air and Sea Transportation 24

H. Export Promotion and Development Institutions 241. Financial Institutions. . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . 242. Grower/Exporter Associations 24

I. International Marketing and Joint Venture Enterprises 251. Import Agents . . 252. Wholesale Market Agents or Commission Merchants 263. Prepacker/Distributors 264. Financing 27

Samuel R. Daines Researdl Group IDC.

Introduction

This document is a profile of export market potentials for fresh strawberries fromSri Lanka, and in particular from the Mahaweli region. The objective of this documentis to provide a brief overview of strawberry supply and demand in major markets and toassess Sri Lankan competitive position and potential profitability in those markets. Theinformation for this report was drawn partly from SRD Research Group Inc. files andpartly from market and competitor field trips undertaken under contract to the Agencyfor International Development in Sri Lanka for the EIED Division of the MahaweliAuthority of Sri Lanka.

A. Brief Overview of an Illustrative Strawberry Export Enterprises

Our analysis suggests that there is approximately 80,000 metric tons per month ofunmet demand in Japan and Europe for fresh strawberries at prices which would beprofitable to a Sri Lankan grower/exporter during the period from August-March.These markets appear to be oversupplied during the months from April to July whichdrives the wholesale price down for all competitors in the market.

Strawberry yields under tropical conditions are likely to be somewhat less thanthose obtained under ideal temperate conditions like California. We estimate that yieldsin Sri Lankan are likely to be around thirty metric tons of exportable fresh product perhectare with good management. At thirty tons per hectare per year it would appear thatthe major European and Japanese markets could profitably absorb the product of an ad­ditional 20,000 hectares of off-season tropical production.

During the profitable eight month seasonal window in these markets, wholesaleprices have been averaging about US$5-7 per kilo during the last three years. We esti­mate that Sri Lankan costs of production will average between $.50-.55 per kilo, and thatwhen air-freight, tariffs and marketing fees are added, the total cost to the wholesalemarket point will be about $1.5-2/kg in Europe and about $4.00/Kg. in Japan. Thissuggests a very high profit margin of roughly $3-5/kg. Assuming thirty tons of exportableproduction per hectare that would suggest a stunning profit of about US$ 90,000 perhectare per year.

A minimum commercial scale strawberry export operation would be about 10hectares and require a fixed investment of approximately the following amounts:

1. Cooling equipment $ 45,0002. Cooling and Packing Shed & Equipment . . . . . .. 25,0003. Field Equipment 35,0004. Irrigation Equipment and Installations. . . . . . . .. 15,0005. Refrigerated Trailer and Lorry Tractor 75,000

Total $195,000

The product is normally packed in 12.5 lbs., 12 pint trays. With reasonable careand post-harvest cooling, strawberries can be expected to maintain acceptable marketquality for about 8 days under refrigerated conditions. This implies that Sri Lankanfresh strawberries will have to be air-freighted to European and Japanese marketsbecause refrigerated sea transport takes too long en route and sails too infrequently.

Page 1Samuel R. Daines Reseuc:b Group IDC.

B. Seasonal Supply & Demand for Fresh Strawberries

The largest export market for Sri Lankan strawberries is West Germany withroughly 29,000 tons/month of unmet profitable demand during the eight month off­season. Japan has about 27,000 tons/month of unmet demand during this period.Switzerland is another large market with a profitable demand of about 6,000 metrictons/month during the off-season. Behind these very large markets are a number ofhighly profitable markets such as the u.K., Netherlands, Belgium, Hong Kong, Italy andScandinavia.

We have selected West Germany, Japan, the U.K., Switzerland, Netherlands,Hong Kong and Singapore for the detailed supply and demand profiles which follow.

1. West German Market.

Figure one outlines monthly supplies and our estimate of profitable demand forfresh strawber in the West German market durin the twelve months of 1987.

251188.88

5ll1l11.88

28888.88

Ronania

SuppliersIII Proftb D~nd

c=J Total Supply

• Italy

• GerMany

• France

• Poland

mBeigiun/Lux

Suppl. Denand for Berries... est Gen'lall9 1987

18888.88

151l88.88

3111188.88

Metric TonslHo.35111111.1111

Figure 1: Strawberry Supply & Demand in Germany 1987

The solid black area represents our estimate of unmet demand in the WestGerman market in 1987 which could have been sold at prices profitable to a Sri Lankangrower/exporter. This "profitable demand" level is estimated as follows. An examina­tion of wholesale prices of fresh strawberries in Germany compared with Sri Lankanproduction and export costs, suggests that the safest profitability period for a Sri Lankagrower/exporter would be from August to early April.

Thus for the period from late April to late July or early August the market isover-supplied from the point of view of a Sri Lankan exporter since wholesale prices aresubstantially lower than during the off-season. We therefore ascertained the tonnageabsorbed by the market during the month before prices dropped and set this level as theprofitable demand level. This is a very conservative setting.

Page 2Samuel R.. Daine$ Research Group IDC.

Figure 2: Strawberry Supply and Demand in Germany1985/86.

Pol~M

Suppliers

.Prom_..o Tota1 Supp l!l

.~ ltal.

Suppliel"$

.Prom_...n Total SuPpl9

-'J ItaI.

~S~i.

~Ge........r.."""

Supply & DeNnd for Berries.~ \iest GeNIal'll) 1985

i \i :\1\1\

Supply!-' DeRand for Berries/.\ !lest Ge.-.. 198&{\, \//

28811B.1IB

Sll8a.1IB

1S88B.1IB

Iletric Tons/ISo..i58e8.e8

3ll8IIB .IIB

5888.88

Ill8IIB .lIB

IBBtlll.1IB

ISBOO.OO

25ll8a.OO

26888.88

ZS8IIB.ee

rfetric Tons/no.3SlllI8.OO 13BlllI8.OO i

I,

The dotted area is thetotal monthly supply which isthe sum of all of the indicat­ed suppliers. Italy, Spain.and France are the maiorsuppliers. with Germanvproviding less than one' fifthof its peak month con­sumption. Belgium, Polandand Holland are the otherimportant on-seasonsuppliers.

The German marketis essentially unsuppliedduring the optimum marketwindow from mid-July tomid-February and onlypartially supplied mid­February to mid-March.

The total unmet de­mand at prices profitable toSri Lankan exporters is esti­mated at approximately250,000 metric tons per year.

Figure 2 outlines thesupply and profitable de­mand situation in the WestGerman market for 1985and 1986. Total supply in 19­86 was roughly 40,000 tonsduring the peak seasonwhich was about the same asthe 1987 level and 10%above 1985 levels. Germandomestic production in 1986was seventy percent of its1987 level.

Thus year-to-year seasonal differences may have a significant impact on the totalsupply from anyone country and the timing of supply may vary from year to year by aweek or two. However, the general pattern and magnitudes have changed little duringthe last three years. This suggests that the West German market will likely remain avery attractive off-season market for Sri Lankan and other tropical exporters.

Page 3Samuel R. Daines Researc:b Group Inc.

2. United Kingdom Market

USA

Israel

Suppliers

c=J Total Supply

• Spain

;:;:;: Italy

• France

• Guat"""la

• Iletherlands

~ Bel/Lux

. for BerriesUK 1986

~~~='''.-.-..-.-..~.......... .... mPortugal

;:;T;:;l:"r~:~'T~'~I\';JIIIIIIIIKenya

511El.II8

h"~ 1

Z59El.B8

Zll8El.II8

I1etric Tons/llo.4Il8El.ElEl

3llllEl .118

358El.1l8

1511El.1l8

1118El.II8

Figure 3: Strawberry Imported Supply in the UK Market for 1986

The U.K. total market is about 40% the size of the West German market forfresh strawberries. We estimate that during the off-season this market will absorb onlyabout 12,000 metric tons per month. A small part of this off-season demand is alreadysupplied by countries like the Italy, Spain, and France. Thus while the u.K. is a veryprofitable market and one to which Sri Lanka should certainly export, the long-termprospects_are not as ood as West Germanv for lar e volumes.

Supply ~ for Berries Supply tor Berries SapplienUK 1984 UK 1985

!let.lc lonslllo._.1lII o Toul Sup

3SIlII.1lII 111 Spoi.

3IlIlII.1lII88 luly

~:" Frl.DCe

ZS88.ee~ GlUteN1..

Z8IlII.88 ]1_1=15e8.88 = Bel/lax

1888.1lII:5 1$1"..el

Figure 4: Strawberry Imported Supply in the V.K. Market 1984 and 1985

Page 4Samucl R. Daines Researcb Group Inc.

M 3. Japanese Market

Figure 5 outlines supply and our estimated profitable demand for the Japanesemarket in 1986. The Japanese market is roughly three-quarters the size of the Germanmarket. We estimate that it can absorb approximately 27,000 tons per month at pricesprofitable to Sri Lankan exporters. The optimal off-season period is from June to

25BBIl.BB

2BBBB.B8

15B88.BB

1BBOO.BB

5BOO .B8

Supply /I: De..ancl for BerriesJapan 1987 Suppliers

• Proftb De"'and

D Total Supply

• Japan

:;:;:: USA

• Ne.. Zealand

II Taiwan

Figure 5: Supply & Demand for Strawberries in the Japanese Market 1987

Figure 6: Supply & Demand for Strawberries in Japan 1986

November. The off-seasonis as sharply defined as theWest German and u.K.markets. About 5% of theoff-season profitable demandis being supplied by theUnited States, New Zealandand Taiwan.

Japan itself suppliesthe dominant share of its on­season supply in contrast toGermany which imports halfof its on-season strawberries.Japanese production alsospans a much longer season­al range (from late Decem­ber to early June) than doesany European producer.

Z58llIl.118

_.118

158l18.118

IlI8lI8 .118

58lI8 .118

Supply a _nd for ...i ..J.""n 1986 Suulien_Prom_..

o Total Supply.J."".83l1S1lmIIeo Zeal...

~ Taiwaa

Page 5Samuel R Daines Res:earcb. Group Inc.

s.."lieno Totol Su..I~

.1101.

~ Sp.lin

~ Fl'ance

~ PolaDi

·lllo..~~ II Deutsclll

Supplierso Toul S...I~

.luI~

~ Sp.li.

~ FnDCe

~ PoiaDi

Ilo..~

~ BJ Deaucld

= br..el

Suppl~ . __ for .....1..Switzet.land 1986

Suppl~ " .. _ for .....1..SwitmJ'l"nd. 1985

4888.88

fletric Ionslfto.6888.88

58IlII.88

21lIlII.88

3888.88

3888.1lII

4888.1lII

58IlII.1lII

USA

1888.88 .IoI,.,.i.11111I1I1letller1...

8.88 J.n I~;.r~ I~.I~~ IJ~.I J~II~.I~ lo.rt I"",,-r~l~ 1Iox1'"

ttetl"ie IoMl1lo.6888.1lII

USA

1888.88 .101,.,.1.

~'1""1"''-;-'"''''''1lIIIl1II1etllerl...8.88J.nIF~~T;;:I~I~. J~. J~I ~1~lo.rtlrb.I~~ll1oxi'"

21lIlII.88

4. Swiss Market

The Swiss market forfresh strawberries is verylarge given its small popula­tion. We estimate thatSwitzerland can absorbroughly 6,000 metric tons permonth at prices profitable toSri Lankan exporters. Profit­able demand is not shadedblack in Figure 7 as in theother graphs to denote thatthis is a tentative estimatenot based on careful analysisof seasonal prices.

Switzerland suppliesalmost none of its ownconsumption of strawberriesand depends on Italy, Spain,and France for most of itssupplies. The off-seasonperiod is sharply defined andbegins in late June and lastsuntil mid-March.

Itctric tonslt1o.6888.88

58IlII.1lII

_.88

2lIlIlI ••

1888.88

Suppl~ . for .....1..SoitzePl.nd 1987

S."lieno Totol S...I.

• Jul.

~Sp.;1iD

~ France

• Pol.no!

.ll!I1lo..~~ U DeutmJ-== IUlel

Figure 7: SupplySwitzerland 1985-87

for Strawberries ill

Page 6Samuel R. Daines Research Group loe.

Boodvep ••

Su.pplien

D rotal Sa"l.

II W.U.EEG

~ Spain

~Pob,_

~_.ia

.I ltd.

~ lel,l..

Sappli....

D ratal Sa"I.

lIu.u.m::;::g Spain

~PoliiN

~loNlli..

...it ItaI.

~ lel,l..

Supply.."".: 1 . EO!' Be1"ries....,. land 1984

(....

III ISI"i.el

588.1lll ~.,..,.~~ii;j 1iI:1111 kl,..la

8.1lll Jan Ir~\ 1tk.1~.IIIa. JunIJ.II,.;,T~;,T~ 1&..lhc,j~ !:uwSu I... ror 1e»1..

_land 19lI6

11llll1.1lll

rletric Jonsl1So.5lIllIl.1lll

4588.1lll

41llll1.1lll

358lI.1lll

_.Illl2588.1lll

Z888.1lll

1588.1lll

lIeulc r._.6811B.1lll

S5llIl.1lll

5lIllIl.1lll

4588.1lll

_.Illl358lI.1lll

3IlllII.1lll

2588.1lll

28III.1lll

l588.1lll ......., ••

11llllI.1llI II 1.....1

~:: . . ,~ . ~ 11I1"" 101,..laJan1r•• 11la>IAppIIla.IJ.. Jul Au, SopI~lblh.iil1 IuW

5. Other Markets

The Netherlands, HongKong, and Singapore are verysmall but potentiallyprofitable strawberry markets.

Data from thesecountries has been analyzedand presented in graphicalformat on the followingpages.

lIIIltal.

mlel,l..

Sappli....

D ratal Sappl.

IIw.U.m:88 Spai.

r.I PolaK~bi.i&

lor 1e»1..land 19lIS

llet.lc r._.6811B.1lll

S5llIl.1lll

5lIllIl.8lI

4588.1lll

_.1llI

3581.1llI

3IlllII.1llI

Z588.1llI

ZIllIB.1llI

1588.1llI .

11llllI.1lll 111 1

588.1lll III~III kl,..la

8.1lll Ja.lr~.Itk.I~I,k~I.r.;~rJuI Aut s;T~I&..lhcllIl IuW

Figure 8: Supply & Demand for Strawberries in TheNetherlands 1985-87

Page 7

I1etric Tonll'fo158.118

128.118

98.118

GB.II8

38.118

128.118

98.118

GB.llll

38.118

128.118

98.88

GB.llll

38.118

Suppliers

• Prom_.o Totd Supp19.mA::::: 'listrali&

II """ ZeaI••.J....III SootJa Africa

mTailillD

= Kala!lSi..

Suulien• Prom_.o Total Suppl9.mA~ ....riNll•

• """ Zeal••.J....a Soutll AfriCA

~ raj.,,..

Figure 9: Supply & Demand for Strawberries in HongKong 1985-87

Page 8Samuel R. Daines Resean:b. Group IDe.

::Uppiien

China

..70ul Suppi!:l

= tioiu.an

Canada

Spain

II France

• USA

_\ ;:;:; Austrai ia

\ %11leu lea I.ud

~ Th"n.ud

Supply a DeNnd. for BerriesSingapore 1985 ;\

\! \!

&.88

4.88~m

2.88

Metric Ionst1lo.

~:::: 11 j1&.88 IJ14.88 IV12.88 1.[/lB.aat".: .....B.B8

Cbinl.

Supplierso Toul Supply

• USA

~ Australia

taiw.l.R

:::::w.1lold..Sp,aia

II Fr."""

~ Ileu lea laud

. "'~ ."/ ~ Thailand.,0

;:;:; Austrd i<il

('.~ "'" Zeal.""

..••••~ Th"il.ud

_

=lai...

w.ald..SpaiD

Cc II Fr."""

Supply a Det.and. for Berries /\ Suppl ienSingapore 1981) /.\ r; . I I S I/ !: 10 -i UPP 'J

(. • USA

!1\/. ,

Metric tons/l'So.3B.8828.882&.88

24.8822.8828.8818.881&.8814.8812.8818.88B.88&.884.882.88B.88

J.n

Metric Tons/no.38.882B.882&.8824.8822.B828.8818.881&.8814.8812.8818.88B.88&.884.882.888.88

Jan

Figure 10: Supply & Demand for Strawberries in Singapore1985-87

Page 9Samuel R. Daines Resea.«h Group Inc.

3ri LanKa ami Comoetitor COStS of Proriuction

c19l1re 11 descrIbes our estimates of the costs Ot Droaucing one Kilo of fresh.~xpon-quaiity strawoerries in Sri Lanka (at high ana low vleia levels) ana in seven major.:ompeting exporter countries.

US$ Cost/Kg.2.66 .,

Cost Iten

• Labor

~II Pro~ltct ion 1npl

~ O,he~ ~"~;~~i~

Florida IphiIllpinesItaly California New Zealand

Strawberries (;osts of rro<luct!on'stjnates for 1987

II

Lanka IndiaTlla i land

3.&8 ~

1.28 ..,

1.48 "

6.66

:.66 ~

J.88 ~

:.88 -1i

1.&8 -1

Figure 11: Strawberries Costs of Production

Sri Lanka is the low cost producer of the eight major strawberry exporterscompared. This is the result of ideal temperate climate, combined with good techn­ology, high yields and relatively low cost labor. Comparing Sri Lanka with otherproducers in Figure 11 reveals that most of the difference is due to labor costdifferences.

The cost of package materials is roughly the same for all producers. but all otherfactors vary with changing technology, yields and factor costs. Italy has a relatively highcost due to the combination of relatively high labor costs and lower yields than the U.S.While low labor cost is a positive factor since strawberry harvest and packing are verylabor intensive processes, low yields and poor technology can easily remove the benefit alow wage cost country should have.

Since there is no established strawberry industry in Sri Lanka it was impossible toobtain reliable cost estimates. We have therefore estimated costs of production for SriLanka based on two alternative assumptions about yields.

Page 10S3-ffiuel R. Daines Research Group Inc.

Cost lte-• Locol Costs

I Florida PhillipinaJuly Callforllia KeY Ze.llaDd

lui.

Strawberrlsa Cost CoIIpetition In JapanE$tiMtes for 1997

Strawberries Cost CoRpetitJon In West GerNlllJEsti_te. for 1987 % Cost lte.

• Locol Costs

Strawberries Cost e<.peUtion In London narketEsthw.tu £01' 1987 Cost It.en

• Locol Costs

&.88

5.88

1.88

3.88

Z.88

1.88

8.88

1.88

8.88

8.88

1.88

Z.88

3.88

1.88

5.88

uS$ Cost/Kg.

8.88 11.88

6.88

US$ CosVXg.

9.88

US$ Cost/Kg.5.58

5.88

1.58

1.88

3.58

3.88

Z.58

Figure 12 comparestotal costs for the sevenmajor competing exporters inthe wholesale markets ofWest Germanv, the U.K. andJapan.

These costs includeproduction costs outlined indetail in Figure 11 plus air­freight and tariffs. In Figure12, Sri Lanka is very competi­tive with all exporters in theWest German market.

The cost of air-freightfrom Sri Lanka to West Ger­many (indeed to any Euro­pean destination) is set bycommodity rate at approxi­mately US$1.25/kg. Thisputs Sri Lanka in an excellentcompetitive position.

Italy's transport andtariff advantages is essentiallyovercome by Sri Lanka'slabor advantage inproduction costs.

Against most off-seas­on competitors like NewZealand, Sri Lanka fares verywell in the European marketsbased on costs.

In Japan, Sri Lanka isnot in such a good competi­tive position since many sim­ilarly low labor countries alsohave significant transport ad­vantages such as Thailand,India, and the Philippines.

D. Total Cost Competi­tion in Major Markets.

Figure 12: Production & Export Cost Competition inGermany, U.K. & Japan Markets

Page 11Samuel R. Daines R=rcb Group Inc::.

E. Seasonal Wholesale Prices and Profitability

,''''CoI.petition £0:- Strawilerries

:Jest GeI"RaOl) 1987

COflpetition for StrawberriesWest GerMany 1987

o Uholesale Priel

Figure 13: Asparagus Wholesale Prices inWest Germany 1987

B.BB ,,

I

1.68 ~

/K (US $)8.BB7.BB6.BB5.BB4.BB3.00

Z.OO

-l.BB ~

-Z.BB ~-3.00 1-4 00 '

. J~M~IA~r~J~IIA~gls,;p !O~tl~u In.:e l

This section analyzes seasonaily fluc­tuating wholesale prices and their effect onthe profitability of export strawberries ineach of the three selected major markets.

Figure 13 graphs the biweekly aver­age wholesale price per kilo for eleven maj­or wholesale markets in West Germanv.This price is the average for all grades' offresh strawberries which were on the mark­et during the specified two-week period.

The graph is in US$ per kilo at pointof sale in the wholesale market. In January1987, the wholesale price in Germanybegan at about $8.75 per kilo and droppedin February to about $6.25 and then againby May to about $2.85.

This dotted area in Figure 13 is thegross sales value which would be generatedby the sale of one kiloof strawberries in theWest German whole-sale market in anyweek during 1987.

Figure 11 showsthe net profits whichwould have resulted toa Sri Lankan exporterfrom a sale of one kiloof fresh strawberries inany week in West Ger­many in 1987.

The solid areadisplays net profits perkilo after subtractingout production costs,transport, tariffs, handl­ing and wholesalemarketing fees. Thus aSri Lankan grower/ exp­orter would have madeapproximately $5.75per kg net profit on thesale of one kilo in thefirst two weeks of Jan- Figure 14: Net Profits to Sri Lankan Grower/Exporter in theuary, and $0.50 per kilo West German Marketon sales during mid-April and May. One can now see how conservative our profitable demand analysisestimates presented earlier are by comparing this profit margin picture with the supplyand profitable demand figures presented above.

Page 12Samuel R. Daines Research Group II'IC.

Heu Zealand

• Florida

~ Phillipines~

C~petition for StrawberriesWest Ge~riy 1987 Co~petitor

.--,!~ ~ Wholesale Pricl

.::: _ Lanka

".. .c •• ,.. :

" .. " :::

I iii I iii I iii I' I i l,iiii:ii1ili:~

-Z.OO -1

-3.BB ~I-4.BB 1

?rof i tlK9\, COS $)8.66 .

7.6B6.6B

5.BB4.BB

3.6B IZ.BB ",1.6B "lJ.BB -,

-1.00 -

.Jan Feb "al' Apr "a.. Jun Jul Au!! Sap Oct Hou Dec

Figure 15: Seasonal Net Profit/Kg. for Eight Major Competitors German Market 1987

Figure 15 adds the low-yield Sri Lankan and seven competitors to the seasonalprofit competition picture. One can now see the solid area representing Sri Lankan netprofits, overlaid by profitability of other competitors. These are stacked like profitmountains in front of each leaving only the highest profitability competitor showing.Taking an example from the first week of January, we can see that the wholesale marketprice was about US$9.00 per kilo. The dotted area left showing is total costs. The netprofits of the highest yielding grower/exporter for Sri Lanka are represented by the darksolid area. In January this Sri Lankan exporter would earn about $5.75 per kilo net pro­fit and spend $3.25 in costs (the dotted area).

Sri Lanka is the most profitable of all competitors. The least competitivecountries in the West German market are New Zealand and Italy. Competitor totalcosts can be estimated by measuring the vertical distance between their profit line andthe wholesale cost. For example, the total cost for a Florida exporter during the firstweek of January would be the vertical distance from the top of his profit line at $5.15and the wholesale price line of $9.00. Thus the Florida total cost including production,airfreight, tariffs, handling and marketing fees would be $3.85 (9.00 minus 5.15).

Page 13Samuel R. Daines Rc:searcb Group Inc.

Florida

'-"- Phillipi'DeS

1t.1,

Keu Ze.. l..Dd.

CoRpetition for StrawberriesVest bel't'a1'l9 1985 Conpetitor

/ 0 IJholesale Frio

/ _ Lanka

'v ! :;:;:; Cditorni..

\ I @ ._ I 00 I""••. V\ ~V ~ Thail.""~ .

Prof it/Kg (US $)la.aa9.aaa.aa7.aab.aa5.aa4.illl3.aaz.aa

I.aai.=I~~~~/a.illl -l'"

-I.illl-z.aa ,-3.illl i-i.aa J"~n""l~r~-b Irlla~'rT'IAp~'r"-IIIa""','I-J~rnrlJuT',ITII>I"-'g""I~~-p IrOct~"I",-.I~; .

Sri Lankan hypotheti­cal net profit margins are es­timated to fluctuate in theWest German market in1987 during the off-seasonfrom a low of about$l.OO/kg to a high of about$6.00/kg.

During the on-seasonthese profit margins wouldhave dropped to less than$1/kg.

Colllpetition for Strawberriesllest Go...... 1986

l11ese margins arevery respectable, especiallywhen we remind ourselvesthat each hectare shouldproduce approximately thirtytons of exportable freshstrawberries.

Prices vary betweenyears with fluctuatingseasons, incomes and ex­change rates. In 1985 profitswould have ranged from $3-8in the off-season and $0.75­3.50 in the on-season.

Profit/Kg IUS $)9.118a.1187.118b.aa5.1184.1l83.1l8

Z.1l8

I.aaa.1I8

-1.118-Z.illl-3.1l8

-i.illl-5.118 +"-~~~T"T-'-"""'-'T"""'~~T

Co.petitorI0 lIholesale PriCt

;_ Lanka

. ~ Californi..

. . ~ I"";.

. '- ~ lhail.""

Florid...

Phillipi'DeS

luI,

Kev ZedilDi

During 1986, hypothe­tical Sri Lankan profit mar­gins would have fluctuatedfrom $2-7/kg during the off­season and $0.25-2 duringthe on-season.

J.n reb liar Apr Ila, JUR Jul I>Ig Sop Oct Ito. Dec:

Figure 16: Profit Competition Germany 1985-86

An analysis of this variation suggests that the off-season minimum profit has heldrather stable at about $3-4 per kg. over the last three years while the maximum hasfluctuated from $6-7. l11e on season minimum profit has likewise held stable at around$0.25 per kilo while the on-season maximum has varied over a one dollar range.

It would appear from these data that Sri Lankan exporters might expect minimumprofit levels to remain rather stable over the medium 3-5 year span during which theirbusiness develops, but should not count on stable maximums during that same period.

Page 14$am\U:1 R. Daines R~rcll Group IDe.

·~petition for Strawberries~ndon 1987

Figure 18: Net Profits to Sri Lankan Grower/Exporter in theUnited Kingdom Market

Ii

/

/

1-/ .. -....

1.... -. -. _.

Co"petition for StrawberriesLondon 1987

-1.58 . j J' I . Ii! i I ( i Ii· I E i -

Jan Feb Mar Apr na~ Jun Jut Au~ Scp Oct Hoy Dec

'. (US $)3.58 1. ,

;\ /~

7.58 f'v: \6.seJ ._\

I·· \5.56 1"" "\ I "

4:.:56:8

1""""""" "\ ,\ .\j\.... /V""""';

" "-."\/~

1.58 i8.56 j "

-'.58 j

Figure 17: Strawberry Wholesale Prices inUnited Kingdom 1987

Jan Feb Hal' Apr Ha~ Jlln Jul Aug Sep Oct Ilo~ Dec

7.58

5.58

3.58 I

4.58

2.58 -

6.58

-1.5!l +-'1--.--1'I..,.1'1--.--1'I""1'1--.--1 T"I..-I,/,·r-r-IT,""1"--'--1...-,--'-1"---'--"'

-8.58 ~!

'rof i tlKg (US $)8.58

2. United Kingdom Market

This section analYZeS seasonally fluc­tuating wholesale prices' and their effect onthe profitability of export strawberries inthe United Kingdom's major markets.

The price graphed is the average forall grades of fresh strawberries which wereon the market during the specified two­week period.

The graph is in US$ per kilo at pointof sale in the wholesale market. In January1987 the wholesale price in the U.K. beganat about $8.45 per kilo and declined inFebruary to $7.50 and then dropped by Mayto about $4.00.

This dotted area in Figure 17 is thegross sales value which would be generatedby the sale of one kiloof strawberries in theUnited Kingdom whole-sale market in any weekduring 1987.

Figure 18 showsthe net profits whichwould have resulted to aSri Lankan exporterfrom a sale of one kiloof fresh strawberries inany week in the UnitedKingdom in 1987.

The solid areadisplays net profits perkilo after subtracting outproductioncosts,transportation,tariffs, handling, andwholesale marketingfees.

Thus a SriLankan grower/exporterwould have madeapproximately $5.00 perkg. net profit on the saleof one kilo in the firsttwo weeks of January, and $0.25-1.00 per kilo on sales during mid-June and July.

One can now see how conservative our profitable demand analysis estimatespresented earlier are by comparing this profit margin picture with the supply and profit­able demand figures presented above.

Page 15Samuel R. Daines Research Group IDC.

lieu Zealand

• Florida

- ~ California

I I I i

Conpetitor__ D Uholesale Priet

_: _ Lanka

- - - - - ;W Ind'- ..... 6lSl. la

~ • Ital!!

::: ~. Thailand

COIlpetition for StrawberriesLondon 1987

-B.58 -

-1. 58 -r-r-r-r-.,.,.--i"'T-,,,,,,,~~::::r.;~--,-...,....,r-'

5.58

4.58

Profit/Kg (US $)8.58

7.58

6.58

Figure 19: Seasonal Net Profit/Kg. for Eight Major Competitors U.K Market 1987

Figure 19 adds the low-yield Sri Lankan and seven competitors to the seasonalprofit competition picture. One can now see the solid area representing Sri Lankan netprofits, overlaid by profitability of other competitors. These are stacked like profitmountains in front of each leaving only the highest profitability competitor showing.Taking an example from the first week of January, we can see that the wholesale marketprice was about US$8.45 per kilo. The dotted area left showing is total costs. The netprofits of the highest yielding grower/exporter for Sri Lanka are represented by thedark, solid area. In January this Sri Lankan exporter would earn about $5.50 per kilonet profit and spend $2.95 in costs (the dotted area).

Sri Lankan is the most profitable of all competitors. The least competitivecountry in the U.K. market is the Philippines, denoted by horizontal lines. In fact, aPhilippine exporter would actual lose up to $1.75 on each kilo sold.

Competitor total costs can be estimated by measuring the vertical distance be­tween their profit line and the wholesale cost. For example, the total cost for a Floridaexporter during the first week of January would be the vertical distance from the top ofhis profit line at $3.65 and the wholesale price line of $8.45. Thus the Florida total costincluding production, airfreight, tariffs, handling and marketing fees would be $4.80 (8.45minus 3.65).

Page 16Samuel R. Daines Rese3n:h Group Inc.

Florida.

Phillipi1leS

New Zealnl

Coopetltl?,,-~~SI~."""j" I ,_.~~ ~ ! • _pet.tor

_::D IIllolesale PriCl

.L.1w",~ 1000i.

...~ ei JtaI!:,-- ••• <1

~ !h&il.o.I

CoRpetitlon for StrawberriesLon4on 1907 CooreUtor

":D Ubolesalc PriCt

.L.1w::~IMi<l

~ Italy

~ !h&il..'

E1:11 Florid.

~ editor.l.

55 Phillipi..

IIew Zeal.....

-8.58

ProfiVX, UIS $)9.88

B.88

7.88

6.1Ill

S.1Ill

4.88

3.1Ill

Z.1Ill

I.IIll

B.1Ill

Prof it/X, UIS $)B.58

7.58

6.58

5.58

4.58

3.58

Z.58

1.58

8.58

Figure 20: Seasonal Net Profit/Kg. for Seven MajorCompetitors United Kingdom 1986 and 1987

Prices vary amongyears with fluctuating seasons,incomes and exchange rates.In 1986, profits would haveranged from $1-8 in the off­season and $0.45-1.65 in theon-season.

An analysis of thisvariation suggests that theoff-season minimum averageprofit has been ratherpredictable at $3 per kg. overthe last three years while themaximum has fluctuated ataround $6.35. The on-season minimum profit has likewise held stable at around $0.25per kilo while the on-season maximum has varied over a range from $1-2/kg.

During the on-seasonthese profit margins wouldhave dropped to between$0.25-2.50/kg.

These profit marginsare very respectable, espec­ially when we remind our­selves that each hectareshould produce approximately30 tons of exportable freshstrawberries.

Sri Lankan hypotheti­cal net profit margins are es­timated to fluctuate in theUnited Kingdom market in1987 during the off-seasonfrom a low of about $1.50/kgto a high of about $6.50/kg.

As could be ascertained from the charts, Sri Lankan exporters should expect theirreturn to vary substantially throughout the medium 3-5 year span during which theirbusiness develops, but should not count on stable maximums during that same period.

Page 17samuel R. Daines Research Group IDC.

CoRpetition for Strawberries';cwa,n 1987

\:' \

C~petition for StrawberriesJ n 1987

I,. IUS $)1Z.58 , /18.811 1 ('.'\ ~

i \ / ..7.581~ I VS,Bllj~ •.2,

58ji

0.86

-2.58 j-5.68 J~n IF~h I~r IA;r I~~ IJ~n IJ~ll~g I~ IOct itbv i~

Figure 21: Strawberry Wholesale Prices inTokyo 1987

Il.BB

2.58 l

5.88

7.58

-5. B8 -h,,-..,--r-r..,--,,-..,---,..,..,--,,-..,---,..,-r-r'T'-­Jan

-2.58

1~.88

ProfitlKg (US $)12.58

Figure 22: Net Profits to Sri Lankan Grower/Exporter in theTokyo Market

3. Japanese Wholesale Markets

This section on Japan analyzesseasonally fluctuating wholesale prices andtheir effect on the profitability of exportstrawberries.

Figure 21 graphs the biweekly aver­age wholesale price per kilo the majorwholesale markets in Japan. This price isthe average for all grades of fresh straw­berries which were on the market duringthe specified two-week period.

The graph is in US$ per kilo at pointof sale in the wholesale market. In January1987, the wholesale price in Japan began atabout $7.50 per kilo, then dropped by Mayto about $4.00.

This dotted area in Figure 21 is thegross sales value which would be generatedby the sale of one kiloof strawberries in theJapanese wholesalemarket in any weekduring 1987.

Figure 22 showsthe net profits whichwould have resulted toa Sri Lankan exporterfrom a sale of one kiloof fresh strawberries inany week in Japan in1987.

The solid areadisplays net profits perkilo after subtractingout production costs,transport, tariffs, handl­ing and wholesalemarketing fees. Thus aSri Lankan grower/ exp­orter would have madeapproximately $5.00per kg net profit on thesale of one kilo in thefirst two weeks of Jan~

uary, and $10.00 perkilo on sales duringmid-June and July. One can now see how conservative our profitable demand analysisestimates presented earlier are by comparing this profit margin picture with the supplyand profitable demand figures presented above.

Page 18Samuel R. Daines Research Group Inc.

California

COrlpetitor

~/:-"'": , .! Uholesale Pricl

_~~: : : : :.• nlailand

(/.. :... ...... s::: Ph ill ipines~

",~-,: • India

:i • Florida

:onpe,ition for StrawberriesJil,'/an 1987

,: \/ .. ~, ,

/". .\

If··· .

?rofi tlKIJ (US $)12.58 l

[16.88 -1

!

7.58~~I: "'\ I

5.BB .. :::~~

-2.58 c

B.88

2.58

Figure 23: Seasonal Net Profit/Kg. for Eight Major Competitors Tokyo Market 1987

Figure 23 adds the low-yield Sri Lankan and seven competitors to the seasonalprofit competition picture. One can now see the checkered area representing SriLankan net profits, overlaid by profitability of other competitors. These are stacked likeprofit mountains in front of each leaving only the highest profitability competitor show­ing. Taking an example from the first week of January, we can see that the wholesalemarket price was about US$7.50 per kilo. The dotted area left showing is total costs.The net profits of the highest yielding grower/exporter for Sri Lanka are represented bythe checkered area. In January this Sri Lankan exporter would earn about $2.50 perkilo net profit and spend $5.00 in costs (the dotted area).

Throughout the year, Sri Lanka is a profitable competitor. Italy would beoperating at a loss during most of the on-season period. Sri Lankan hypothetical netprofit margins are estimated to fluctuate in the Japanese market in 1987 during the off­season from a low of about $1.00 to a high of about $9.00. During the on-season, theseprofit margins would have dropped to between $0.65 and $2.00.

These profit margins are certainly lucrative, especially compared with the averageprices in the European markets. At a yield of 30 tons per hectare, the potential profit isnoteworthy.

Page 19Samuel R. Daines Research Group Inc.

Ca.1 i£ornia

Hew Zealan<!

Lanka

'= Italy

-:~"petition ior Strawberries';apan 1985 :vnpe:titor

. Uholeu.ie PriCt

'3 DO j "~------II• ,~l , .. .. . .. . lhailan<!U~1 I. ..... .11.68 1 ~ Phillipines16.08 1 1!!!~_~~~,.08, ,." ".~In<!ia

t51~ I . ~ f1.'ida

5.08 ,.: '---v~4.68 {~fA

r5 ~~'14"-1.08 1 .-2.08 i-3.08 i-'L68 -1

-5.88 J+~n--'I-Fe~b""IItar~'''IApr '1:::9 IJ~n IJ~ll~g l~p lOct l~u iDec

?:-OfltlJ<g (Us $)

Cofilpetition for Stral(berriesJapan 1~ I \ Coftpetitor

Profit/Kg (uS $) / \ ~ Uholes.a.le Price

17.561 !tt;:.\. lhailan<!

15.66 j ; \ ,~~I i ~ 00 PhilJipines

12.56 i '?~ In<!ia

IB.08 i I· ~ f1.,ida

7.56 f"'- / Laol<a

5.081~ •.:·:~:~ Hew Zealan<!r"~ v" I' -

B

2••581lll j.in: ~, - Italy

. "c_.,i/'

Californi..

-2.58 j-5.B6 J~n IF~b I~, lAp,i~n IJ~II~.I~p 100t I~.I~

Prices vary among"ears with fluctuating seasons.incomes. and exchange rates.During 1985, hypothetical SriLankan profit margins wouldhave t1uctuated from $2.50­8.00 during the off-seasonand $1.00-2.00 in the on­season.

In 1986, profits wouldhave ranged from $2.00-15.00in the off-season and $0.75­1.50 in the on-season.

An analysis of this var­iation suggests that the off­season minimum averageprofit has been ratherpredictable at between $4-9per kg. over the last threeyears while the maximum hast1uctuated from $10-12.

The on-seasonminimum profit has likewiseheld ~table at around $2. Theon-season maximum hasvaried over a range of aboutUS$3.

~igure 24: Seasonal Net Profit/Kg. for Seven lvlajorCompetitors Tokyo 1985 and 1986

As could be ascertained from the charts, Sri Lankan exporters should expect theirreturn to vary substantially throughout the medium 3-5 year span during which theirbusiness develops, but should not count on stable maximums during that same period.

Page 20Samuel R. Daines Research Group IIICo

F. Recommended Varieties

Day-neutral varieties appropriate for tropical and arid production areas include:Chandler, Douglas, Pajaro, Selva, Tangi and Cardinal. Of these, the best market varietyis Chandler. Since these varieties would be forced into an annual production mode,there is little long-term risk. Commercial production should commence with Chandlerreproduction with some smaller test quantities of all others.

At the end of the first commercial year, the conclusion should be determined andfurther reproduction could be directed away from Chandler in the unlikely event thatanother variety is more successful.

G. Potentials and Constraints on Strawberry Exports from the Mahaweli

Post-Harvesting Technology

The introduction of difficult post-harvest technology is most critical in the case ofStrawberries where self life is only 9-12 days maximum and where a few minutes delayin cooling or slight mishandling of the fruit make a big difference to the viability of thebusiness.

This is particularly difficult since the technology must be similar to that used inhigh field heat circumstances like California desert strawberry production and not likeJapanese cooler technology. Post-harvest handling is also made more difficult by rainduring the harvest which is similar to the Dutch and English post-harvest situation. Allof this adds up to a very difficult but superable constraint.

The conclusion or our analysis with reference to constraints in post-harvest tech­nology are that where the constraint is critical it is not because of a lack of appropriateexisting post-harvest technology, the constraint is a training constraint of transferring thattechnology to Mahaweli farmers and firms.

Training in post-harvest technology is only effectively done on the job in packingfacilities with adequate cooling equipment. There is little point in undertakingtechnology training independently of actual project development.

The added costs associated with post-harvest technology training mean that thefirst packing plants which pioneer the application of the technology to the Mahaweli willbear an abnormally high training cost which may warrant public or external financialsupport. Small farmer crop specific production cooperatives have proved to be anexcellent mechanism for channeling this kind of training support where small farmersare concerned.

Year Round Irrigation

Year round irrigation is the second most important production constraint in theMahaweli region. This constraint is a critical one for all varieties and productionschedule options for strawberries. This is called a 365-day irrigations constraint becausefor this product not only does year-round water need to be available, its daily availabilityneeds to be under the control of the producer. The standard rotational periods are notsatisfactory supply arrangements for these crops.

Irrigation availability on a daily basis year round is a sine qua non for largeinvestment in any of these products, and an informed investor would not proceed evento expend significant sums on site specific feasibility analysis until the solution to thisconstraint was clearly possible.

Page 21Samuel R Daines Researc:b Group Inc.

The difficulty of obtaining year-round, daily available irrigation water from in theMahaweli region arises from two companion problems. The first is that the Mahaweliirrigation systems were designed and are currently being managed to provide seasonalirrigation principally on paddy rotation schedules.

This would permit certain of our selected short season export crops to serviceduring one or two crop cycles each year such as gherkins, tomatoes and melons andallow for approximately a 90-day marketing season. Some permanent crops are droughtresistant and could likely service from year to year and produce some short seasonexportable fruit with minimal irrigation support from shallow wells when Mahaweliirrigation was not available.

Seasonal irrigation would, however, substantially reduce the profitability andviability problems from the fact that a 90-day marketing season leaves the very heavyphysical and managerial infrastructure, required for these enterprises, idle during threefourths of the year, and prevents the product from being in the market for a longenough time to permit effective market channel management.

Two possible solutions might be examined to solve this important problem. Thefirst might be to allow small farmer cooperatives to exercise their basic rights in "deadstorage" as a kind of backup insurance to keep their permanent crops alive during thenon-paddy season. Even under drought situations this use is consistent with theMahaweli policy which is to give the settlers the final rights to the last drop of water(dead storage) in the reservoirs to keep their families, animals and permanent cropalive.

A small scale settler cooperative, pooling their inherent dead storage rights couldthus assure a year round supply of water available on a daily basis with a simple pumpand PVC pipe into a reservoir. This is the pattern on which the grape grower coopera­tives are functioning securely in the drought prone areas of Southern Maharashtra India.

By using drip irrigation application systents, these small farmers assure that theycan keep their small grape gardens alive on a minimum of water.

A second option would be to develop groundwater through shallow dug wells ordeep tube wells. During most of the year, the water table in many Mahaweli areasappears to be high enough that shallow dug wells could be a practical method of obtain­ing farmer controlled daily reliable supplies of water. If drip or even sprinkler applica­tion is used, these limited supplies could be effectively stretched to support significantareas of export crops.

The difficulty arises because the possibility in all areas, and certainty in many,that these wells will go dry during the critical periods of the year. The SRD team didnot examine the hydrological feasibility of deep tube wells and the existence or non­existence of deep aquifers in the region.

Production Technology and Training

The technology for export production of the crops chosen under soils and climaticconditions similar to the Mahaweli exists in many countries. None of the priorityproducts selected need be the subject of the development or even modification ofexisting production technologies.

This is a major positive factor in moving these activities rapidly from the researchto the development phase in the Mahaweli region. This should not be read to implythat there is no production technology constraint, but simply to mean that it lies in prod­uction technology training and not in production technology research and development.

Page 22Samuel R. Daines Resc:an:b. Group IDe.

Training for production technology in fresh fruit and vegetable export crops takesplace most effectively on-the-job during the course of project development. It is bothneedlessly costly and relatively ineffective to undertake training in artificial educationalor even demonstration sites or facilities. The most effective mode for providing thistraining is with "field-men" employed as agronomists representing the packing coopera­tive or company.

The substantial added costs of training which will be borne by the pioneeringcooperative or firm may justify substantial public or external financial subsidy. With asignificant training subsidy, the success of the technology is secured not just for thepioneering cooperative or firm, but also for all those coops that follow.

For more than a decade, the production of strawberries in hot arid areas using"day-neutral" varieties as annual crops has been a commercial reality. In fact, this tech­nology now dominates strawberry production over cool-climate three-year type techn­ology. This technology involves production of starts in cool climate nurseries and thetransplanting of these starts to hot, arid areas for a single season of production.

This technology is, by far, the most complex and difficult of all the crops selected,and is the only crop case where a production technology constraint is given a major rat­ing. Small areas of land would be required in a hill area for reproduction of starts.

Soils Constraints

The soils requirements of the selected crops vary little if irrigation water is avail­able. Under rain-fed conditions, some crops will do better on somewhat heavier thanthose which are optimal if irrigation is available. Sandy loam soils with good internaland external drainage and reasonable depth (60-100 cm) are ideal for all of the cropsselected. These soils are what Mahaweli soils maps generally classify as class II and classIII soils. Acceptable soils of these classes are sufficiently abundant in the Mahaweliregion represent no constraint on production.

Cooling and Packing Export Infrastructure

The most critical infrastructure constraint is the total absence of field coolinginfrastructure in the Mahaweli region. Without such facilities, no produce exports cantake place:; -

Refrigerated Trucking

Another critical constraint is the non-existence of refrigerated trucking either inthe Mahaweli elsewhere in Sri Lanka. A handful of frozen trucks exist in Sri Lanka forice cream and seafood, and a few small flower trucks were located. However, there areno forty foot refrigerated trucks of the type needed for fresh produce transport from theMahaweli to Colombo.

On-Farm Irrigation Infrastructure

The lack of on-farm irrigation infrastructure was rated as a major constraint onthe production of most of the selected crops. Should a drip irrigation be needed, thecost would approach approximately US$2,000jHa. Strawberries require precision, on­farm irrigation infrastructure involving drip, sprinkle, or micro-leveled surfaceapplication. The availability of on-farm irrigation infrastructure was rated as a majorconstraint.

Page 23Samuel R. Daines Reseatcl1 Group Inc.

Air and Sea Transportation Infrastructure

Air and sea transport availability and port facilities are critical links in the inter­national marketing chain for perishables. The SRD team assessment is that thesefacilities present a minor constraint on the development of strawberries.

Sea port facilities are acceptable for reefer container handling and there isadequate current to major market destinations. Current traffic would not be sufficientto handle major expansions, but that is to be expected. Container vessel traffic isnormally a function cargo demand and it would be unusual to find the capacity to havewildly outrun market. As additional capacity is needed, there will be a capacityexpansion response, but the time lags can be painful to specific enterprises.

H. Export Promotion and Development

This section explores our assessment of the potentials and needs of the variousinstitutions provide support services to export enterprises. We have defined fourcategories support institutions: a) financial support; b) growerj exporter associations, c)export promotion or regulation functions, and d) those providing advisory services.

Financial Institutions

The financing of perishable export enterprises present special challenges formainline agricultural and development banks. The financial needs and requirements ofperishables export enterprises, and the institutional potentials and constraints of SriLankan financial institutions is discusses in sufficient detail in a companion report andneed not be repeated here. We discussed these issues with a major Sri Lankan bankinginstitution and found them to be most interested in exploring specialized procedures andpractices to accommodate the unique problems and opportunities presented by theperishable export trade.

GrowerjExporter Associations

Trade associations of growers and exporters are the organizations which corneclosest to representing private sector interests and needs. Since these organizationsoften have a particular product focus they are particularly suited to receive and makegood use of product information and assistance. The needs and problems associatedwith export development vary so widely between different products that it is difficult atbest to mount multi-product export promotion or advisor assistance program. The levelat which these efforts begin to take on a practical business utility is almost always at theproduct level and not before.

A program which tries to deal with production, transport, marketing or any otherimportant issue will be most useful when it focuses on a specific product. This conceptis one we call "commodity focus." It has institutional implications. In many differentcountry settings we have observed this theme reappear in every possible context to thepoint that we accept the importance of "commodity focus" as an operating axiom. TheSri Lankan situation simply reinforces our conviction that the most useful export promo­tion institutions are those which gather growerj exporter firms together around aparticular or narrow range of commodities.

Page 24Samuel R. I>aine$ Researcb Group Inc.

In Sri Lanka, there are only a few of these grower/exporter associations at thepresent time. The Orchid Growers' Cooperative Association and the Fruit andVegetable Exporters' Association are the only two that we identified during our study.We would recommend that future work by EIED and/or AID in the area of exportdevelopment be directly involved with those associations that now exist, and that effortsbe made to establish strengthen additional ones as specific commodity opportunitiesmature.

I. International Marketing and Joint Venture Enterprises

Effective export enterprise development always begins in the marketplace andbuilds backwards local production, and not the other way round. This pattern also holdsfor institutions and enterprise players, the most important institutions are those in themarketplace. This section provides an overview of the players and institutions in themarketplace an assessment of their levels of interest and capability of playing differentroles in the development of Mahaweli and Sri Lankan perishables exports. These rolesand the institutions vary somewhat by market, but the roles are generalizable enough toallow for overall discussion.

Different types of marketing entities vary according to many characteristics. Thecharacteristic which we think is most important to a potential Sri Lankan exporter is therelative of access. Some of these companies are very easy to access and relatively lessdemanding in terms of the minimum size import they will handle and the level of qualitydemanded.

Ranked in order of their relative ease of access, marketing entities may begrouped follows: a) Import Agents; b) Wholesale Market Agents; c) Pre-packer/Distri­butors; d) Supermarkets or Multiples. The discussion which follows explains andevaluates of these types.

Import Agents

The easiest and least useful group of marketing companies, is the import agentgroup. These are very small firms, usually just an office and five to ten employees, butoften just one or two agents. These companies are essentially import documentationagents some transport connections to move the product to a delivery destinationrequested either by the exporting seller or an importing buyer. These agents are notreally "buyers" or "marketers" and while they frequently have acquaintances and contactsin the wholesale or even supermarket companies, they are seldom useful in obtainingsales contracts with these firms.

In some cases, importers will act like buyer/marketing agents offering to marketthe produce. In such cases, they will sometimes offer a ClF price for the product oragree take it on consignment. It is our experience that dealing with an import agent asif he/she were a purchaser/marketer is seldom an effective way to sell produce. Theseagents very easy to access and no shipment is too small, and no quality too poor forthem. They can give the emerging export business person a false sense of security. Theyare best used, when it is necessary to do so, simply as export documentation handlers fora service fee or a fixed fee per transaction.

Page 25Samuel R. Daines Resc:an:b Group Inc.

Wholesale Market Agents or Commission Merchants

Wholesale market agents and/or commission merchants are marketing companieslicensed to operate in a public fresh produce wholesale market. All major cities inEurope the Pacific Rim have regulated wholesale markets. Only in the case of theNetherlands these markets operated as formal auctions where produce is placed beforeall buyers who formally bid for it. In the other countries, the sales are informallynegotiated the wholesale market "halls" which are lined with individual merchant's stalls.

Wholesale market agents place a small sample of the produce on the marketfloor in the hall in front of their stall and buyers review those samples and negotiatequantity and price. The volumes purchased are then shipped to the buyer designatedlocation in some cases on trucks owned or leased by the wholesale marketing agent andmore often in trucks owned or leased by the purchaser.

Wholesale market merchants are just a bit more difficult to work with thanimporters, they are considerably more useful. The normal mode of operation is onconsignment the exporter paying the costs of transport and tariffs. The wholesalemerchant usually somewhat more demanding in terms of quantities and quality than theimporter but not nearly so demanding as the pre-packers or supermarket buyers. Thusthe wholesale market represents a useful beginning point for the emerging, but not yetestablished exporter.

The advantages of working with a wholesale market commission merchant isrelative ease of access, willingness to work with uneven quality and small and seasonallyirregular quantities of produce. The disadvantages are that the commission merchantwill seldom assist the grower/exporter with financial or technical support and sincehe/she is handling produce on consignment, the grower/exporter has no price security.The buyer database supplied to EIED contains many hundreds of names of wholesalemerchants along with their addresses and products handled and language abilities.

Wholesale merchants are very approachable and may usually be relied upon toprovide accurate accounting of the prices received for the merchandise. Thesemerchants will usually liquidate the sales within a week or two, but some merchants payhabits are questionable and their accounting occasionally suspect. Trade references areavailable which provide an evaluation of the financial promptness and general reliabilityof the merchants. Wholesale agents will most often be willing to make all the necessaryarrangements to handle imports, even if they do not have the documentation andclearance capabilities in-house.

Even though wholesale agents are important to the emerging business, it isimportant to the emerging business to realize that they do not dominate the trade. Inthe United States, more than 70% of all fresh produce is sold directly by grower/packerswithout ever passing through wholesale markets. In Europe and Japan, the percentagesare somewhat less, but the pattern is basically the same. Wholesale markets can usuallyget better prices out of lower quality and highest quality produce than the other market­ing alternatives. Our experience is that the mid-range of good quality produce will bringthe best stable price when sold directly through pre-packer/distributors to supermarkets.

Prepacker/Distributors

Prepacker/distributor companies are characterized by having ongoing contractualsupply arrangements with major supermarkets and other multiple retail outlets. Thesecompanies large volumes of produce on a regular basis to the supermarkets and theycompete aggressively for the confidence of supermarket buyers. This competition isbased consistent quality and quantity supplies.

Page 26Samuel R. Daines Researcb Group Inc::.

Most prepackers/distributor's business is the large and stable volume trade withsupermarkets. In order to maintain this large volume business, the distributor must havelarge and consistent sources of supply and cannot run the business on the day to dayuncertainty in supply which characterizes the wholesale markets. Because of the natureof their business, these companies reach both directions from the wholesale level,forward the supermarkets and backward to domestic and foreign growers.

This wide reach of their interest and the constant pressure on them to maintainlarge volume high quality supplies to the supermarkets makes them very attractive jointventure partners for emerging grower/exporter enterprises such as those targeted forMahaweli development. A possible joint venture with a major distributor/packer likeGeest or Fyffes can bring three major benefits to an emerging grower/exporter. Thefirst is financing, the second is technology, and the third is market position.

Financing

Major distributor/prepackers frequently pack in a brand name container. Thesebrand name marked packages may be in the distributor's brand or in the brand of thesupermarket. As a result of this practice and by frequent custom, when a grower/­exporter and a prepacker often supplies the packaging as part of his share in theventure. Since packaging can be half or more of the total costs of production, such anarrangement can relieve a grower/exporter of half of the production cost financialburden.

Transportation is almost always the single most important cost in an enterpriseexporting perishables. A second, and even more important financial benefit from a jointventure with a prepacker/ distributor is that they will frequently pay the transportationcost as their part of the deal. If the product must be air freighted this can mean eightypercent of the total landed cost. That can be a vital financial benefit of dealing withthese entities.

A joint venture with a prepacker can also provide technological assistance in pro­duction and post-harvest stages. The ability of the joint venture partner to assist withtechnical aid can be an important benefit of a joint venture with a prepacker/distributor.

Prepackers have established their market position over many years of aggressivecompetition. A contract with a prepacker puts the grower/exporter inside thatestablished market position. A wholesale commission merchant can seldom match thiskind of market security.

The main disadvantage of working with prepacker/distributors are consistentquality and volume requirements of these arrangements. An emerging grower/exportermay require a few seasons of accessing the market before being able to make anacceptable joint venture with a pre-packer. If the initial plan is well-developed andthere is significant scale in the project and equity investment from the Sri Lankan side,it is possible to develop joint venture from the beginning.

Our experience suggests that large pre-packer/distributor firms are more trustableon the average than wholesale market merchants, but they tend to be much moredemanding and difficult to negotiate a fair split in profits. On balance, however, werecommend a pre-packer/distributor joint venture as the best alternative marketingarrangements.

Page 27Samuel R. Daines Researdl Group IDe.