Sri Lanka: An F&B transitional hub?

Last week Sri Lanka saw the launch of the ‘Pro Foods/Pro Pack 2011 International Exhibition’ organised by the Sri Lanka Food Processors Association in partnership with the Ministry of Industry.

As I was invited to give some thoughts at the launch conference, it made me spend some time obtaining insights into the Food and Beverage sector, which has attracted almost every company in Sri Lanka to operate in it this market domestically or internationally.

 

Even though I had previous exposure of managing global food brands like Colmans for Sri Lanka during my brand marketing days, what I unearthed was that world trends had evolved so much that it was virtually a new business model in which the food and beverage sector now operates.

To add value to the event, I thought of integrating the Budget proposals of 2011 to the overall business strategy of this sector and then link the event to the national template of the country. The findings were very interesting and the event ideally fitted to the national agenda. From the data that I gathered, my initial thoughts were that Sri Lanka was poised to become a transitional hub for F&B in Sri Lanka and that this event ideally fitted the front end of the value chain. Let me throw more light on this proposition.

Global opportunity

The market size of F&B is approximately US$ 1,640 billon as at last year. One can just imagine the future of this business as the latest forecasts estimate that the global population will be nine billion by 2050. If 40% of one’s monthly income is taken up by food and beverage, this market can be a multi-billion dollar business in the years to come, which justifies why many blue chips of Sri Lanka are venturing into this sector.

The global thrust is also very strong, with Pepsico announcing that it will be investing a colossal 3.5 billion dollars on a fruit juice company in Russia, making it the second largest investment that Russia has seen in recent history.

Sri Lanka’s throughput of food and other beverages is around US$ 170 million, which to my mind is very low given that in each province across the country this sector dominates the economic agenda. Even if we take the conflict-affected Jaffna peninsula, the acclaimed product ‘Nelli Crush’ is often highlighted as a classic product that survived in war and in peace times and how it united Sri Lanka by way of consumer need satisfaction.

In my view the F&B business can be a billion dollar export industry for Sri Lanka in the next couple of years, especially given the focus of Budget 2011 targeted to value addition and SME development.

The logic

This opportunity also brings onto the table the possibility of Sri Lanka becoming a transitional hub for F&B given the development of Sri Lanka being poised to becoming a maritime hub. To be specific, the Colombo South Harbour with its five kilometre break water can attract larger and more modern vessels into the country and thereby increase the throughput from 10,000 TEUs to almost 14,000 TEUs, which gives us an idea of the economies of scale that can become a reality in Sri Lanka by mid 2012.

This makes the country take centre stage for food and beverage in the South Asian region and may be a transitional hub. The Magampura Port being on the ancient silk route of between East and West and the development of the Mattala Airport can further make thrusts to Sri Lanka becoming a logistical hub, not only for food and beverage but also in many other sectors.

The challenge is for the private sector to believe in this developmental agenda and fashion one’s business to exploit the opportunities that will come into play in Sri Lanka in the near future. The sad story is that if the private sector does not adjust to these emerging opportunities, international organisations will set up business and take these opportunities. But then again just like in Vietnam post the war, this is the reality of free enterprise but I hope this will not happen in Sri Lanka.

 Budget 2011

If one closely examines Budget 2011, the income tax set at 10% for SMEs and the waiver of unpaid tax liabilities at March 2009 indicates the Government policy on the developmental agenda of Sri Lanka. After all, 70% of Sri Lanka’s GDP is generated by the SME sector.

The knowledge city that will be set up in each province will help a typical SME on the business development services that have been the cry of an SME for the last decade. Be it R&D, quality certification and management services like a standard P&L being developed for raising a commercial loan, to name a few.

The setting up of Atchchuveli Industrial Zone in Jaffna and the proposed industrial zone in Mannar will further add to the SME developmental agenda. However, it must be said that unless the ‘Ease of Doing Business’ parameters are corrected with structural reforms, Budget 2011 can bleed the country’s revenue mechanism.

Demand generation

Given that the working document from a policy perspective is the ‘Budget Proposals of 2011’ which is essentially supply chain-driven next year on the theme of productivity, the demand generation agenda will have to be a hot button priority in the years to come. However, projects like ‘Pro Foods-Pro Packs Exhibition’ will fit into the template of being a demand generation event that is fuelled by the private sector.

Especially since it will attract regional buyers and global retail store owners to the event provided that supply chain capabilities are verified, there can be many partnerships that can become serious business ventures in the future just like gherkin produced in Sri Lanka that cater to the McDonalds, Heinz and Unilevers of the world.



Global trend

Whilst we balance the supply chain development to the demand generation mechanisms, it is also very important that we are sensitised to global trends in the F&B industry. Let me share a few of them:



1) Growth of private label

As against the ethos of where consumers prefer global brands, in the last one year we see that with the pressure of the purse people are moving to purchasing lower-priced private label brands that are offering unique selling propositions in the supermarkets. I guess the challenge is how a supplier from Kilinochchi or Mullaitivu can be developed to cater to a private sector label by August 2011. This can be realistically done as we saw in the last edition of Sri Lanka Design Festival. A typical global designer called Gabrielli linked up with a top local supplier to launch a new label to a South American market. This will be announced officially in the near future, but best practice can be replicated in the F&B sector in August 2011.



2) Simple food

This was also influenced by the economic downturn in last few years where average wage rates are declining and unemployment rate rising, which could be the reason that households are reverting to simpler food and beverages, which are essentially from farm to the table. Unique selling propositions like naming a farmer that the food originated from or citing an ingredient are becoming fashionable. May be the Sri Lanka food Processors Association can play a catalyst to linking these trends with farmers from rural Sri Lanka through the chambers – an operational model that can be pursued.



3) Craze for gluten-free

Another trend seen globally is based on the health-conscious platform. We see people moving towards purchasing products that are ‘easy to digest’ and induce weight loss, which enhances healthy lifestyles. Sri Lanka’s supply chain can be linked to such demand patterns, which are essentially niche markets that ideally fit our small production basses.



4) Immunity based

Given the rampant diseases that are ravaging the face of the earth, a new trend seen globally is where housewives are selecting food and beverage products that provide immunity to kids. Hence, products with claims such as probiotics and antioxidants are now creating a wave of demand that Sri Lanka can latch on to. The issue is validating such claims, which is the responsibility of the marketing company at that end.

Next steps

1. Associations like the Sri Lanka Food Processors Association (SLFPA) must work closely with the Government of Sri Lanka in the implementation of the Budget proposals, which are essentially SME-based. If not, the year will go by and Sri Lanka will as usual lose out with many of the incentives not being utilised.

2. The chambers must be linked to such demand-generating mechanisms like ‘Pro Foods/Pro Packs’ exhibitions so that global consumer habits can be linked to the supply chain mechanisms in play. This can make events like ‘Pro Foods/Pro Packs’ that happens in August 2011 showcase F&B products and link them to an international buyer.

3. May be the companies that perform can be linked to the Government machinery where they will have access to international mega exhibitions like Anuga that happen annually where more serious global buyers can be reached.

4. Together with the Ministry of Industries, an industry positioning must be encapsulated. Propositions like ‘Ethically Processed,’ ‘Rain Forest Alliances’ or may be ‘Ozone Friendly’ status just like Ceylon Tea must be pursued so that we cut our selves different from the other South Asian countries that are plagued by poverty and internal conflicts.

5. One-two-one business meetings must be facilitated at each exhibition that happens in Sri Lanka together with facility visits so that credibility of the supply chain can be given to prospective buying missions.

6) Social media like YouTube, Twitter, Four Squares, Facebook, blogs, websites and e-mail must be used together with traditional media so that it creates the buzz to be included to the global F&B Exhibition template in the future.

(The author is an award winning marketer cum business personality that has served top global multinationals in the South Asian region from brand management to country management and also served the country in key positions of business and trade. Currently he serves the international public sector in Sri Lanka and Maldives whilst serving many private sector and Government boards of management. The thoughts expressed are the author’s own and do not reflect the offices he holds.)