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Innovative Practice Sri Lanka: Integrating small farmers into dynamic supply chains - case study of Ma's tropical fruit company

Case study
G03264
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The traditional supply chain of spices in Sri Lanka consists mainly of small scale producers. Over 200,000 small scale growers are involved in spice cultivation where 70% of production comes from small holder farm units of less than 1 ha of land. Many of them are part time farmers with other sources of income. Only a small group of producers have commercial orientation and are willing to improve productivity. Because of this lack of investment, the supply chain has some fundamental problems that need to be dealt with: 1) purchasing is decentralized; 2) the quality of products is low; 3) there is a strong presence of middle-men in the chain. These limitations are affecting the competitiveness of smallholders who grow spices for the domestic and export markets.

As a response to this weak competitiveness of smallholders MA'S Tropical Food Company has introduced an innovative "business model". Through this model, the company assists smallholders in different ways: 1) assisting smallholders on organizing themselves (alone and in farmers' organizations); 2) shifting the company's procurement system from decentralized to centralized; 3) training extension officers to support farmers; 4) setting private standards and paying premium prices for farmers who achieve them; 5) improving logistics and inspection. This model has mutually benefited the parties involved in the supply chain. For the company, it has improved corporate income, volume of trade and turn over. For smallholders, it has improved farm income, created more jobs and enabled other non-monetary benefits (i.e. inclusion).

This model has been in existence for about a decade. The company has not yet reached its potential capacity. Some limitations of this "business model" can already be identified: 1) high transport cost; 2) high labour cost; 3) delayed payments.

This publication forms part of the Regoverning Markets project.

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G03264