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Study conducted by Oxfam GB

Published in May 2012

Technical Team and Contributors Gregory Matthews, Neavis Morais, Saviriappu Thevathas, Sinniah Kokularajah, Anusha Ratnayake, E. Marianeasam, Rajaratnam Raj Kumar, S. Juvanendran, Gemunu Wijesena, S. Fawzardeen, T. Senthees, P. Perinpakumar, Tharmaratnam Parthipan, Nadarasa Pusharaj, Nishanty Sivakumaran, Ajith Weerasinghe, Rajesh Dhungel, Sinnathamby Raguraamamurty, Karthika Tharmalingam, Paramanathapillai Seran.

Published by Oxfam GB 8, Kinross Avenue Colombo 04 Sri Lanka

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About the EMMA report

EMMA (Emergency Market Mapping and Analysis) is a rapid market analysis approach designed to be used in the short-term aftermath of a sudden-onset crisis. It is premised on the rationale that a fuller understanding of the most critical markets in an emergency environment enables key decision makers (donors, NGOs, government policy makers, etc.) to consider a broader range of responses based on market realities. The methodology used for this study adapted the standard EMMA approach to the postcon�lict and resettlement context of northern Sri Lanka, but nevertheless followed closely the EMMA 10step process, including a focus on key critical market systems and a combined gap, market and response analysis. Comparison to a baseline market system was not used in this analysis. Due to the duration of the con�lict, and the signi�icant changes in the market environment, reference to a pre-displacement market system is not possible or appropriate. Instead, market maps illustrate the market system as it is currently functioning and in certain cases, how it is anticipated to function in the future. The EMMA team was made up of 17 members from four organizations – Oxfam GB (lead), Danish Refugee Council (DRC), Oxfam Australia (OAU) and NGAGDO (a local NGO) – and four external consultants - two value chain specialists, a �inancial systems specialist and one lead facilitator providing overall technical support for the market analysis and reporting. Six of the team members were EMMAtrained prior to this assessment. In addition, a four-day training in the EMMA tools and methodology was provided for ten people – two for each of the �ive market systems - prior to the start of �ieldwork. The EMMA team was divided into �ive sub-teams, and each sub-team was responsible for analyzing one critical market system. The assessment took place from 1-18 May, including seven days of desk-based secondary research and EMMA refresher training in Colombo, and 11 days of �ield work in Kilinochchi and Mullaitivu districts, Northern Province, Sri Lanka. The �ieldwork portion of the assessment collected primary data using focus group discussions with farmers’ organizations and consumer households, and semi-structured key informant interviews with key market actors, government of�icials, and market service providers.

Five critical markets were selected for this study using a three-step approach during the EMMA refresher training and �ieldwork preparation phase prior to the start of data collection. Market selection focused on identifying those market systems that were most critical for ensuring survival, for promoting and protecting livelihoods, and for ensuring income for the target population. First, a long list of critical market systems was generated for each of the three primary livelihood groups in the two target districts (wage labour, agriculture, and �ishing). These lists were then prioritized based on how critical each market is for the food security, livelihood, and income needs of each livelihood group. In total, a longlist of 84 market systems for wage labour, agricultural and �ishing livelihood groups was prioritized into 21 market systems. Those prioritized include: red rice, coconut oil, dhal, bicycles, mammoty (hoe), farm labour, �ishing labour, construction labour, cassava, wheat �lour, eggplant, corrugated tin sheeting, kitchen utensils, sugar and tea, canned �ish, chili, coconut, brinjal, tomato, okra and transitional shelter materials. These 21 markets were then ranked according to six criteria to determine which markets were most appropriate for each livelihood group. The criteria used for ranking were: 1. 2. 3. 4. 5. 6.

The market is related to signi�icant or urgent need; The market system is affected by the emergency; The market system �its the agency mandate; Seasonal factor and timing are appropriate; The market system is consistent with government or donor plans; and Programming options in the market system are likely to be feasible.


The high-ranking market systems were then compared across the three livelihood groups and there were several market systems that overlapped, being critical for multiple livelihood groups. The five highestranking different market systems were deemed to be the most critical for the target population and selected for this study. The five critical markets examined by this EMMA study are: red rice – supply market; groundnuts – income market; credit services – supply market; masonry labour – income market; and milking cow – supply market.

The EMMA report is structured into five separate chapters. The red rice market system is discussed in Chapter One where the focus is on the capacity of the red rice market system, constraints for the target population to meet their needs and appropriate interventions to support the target population. Further, a series of recommendations are provided to strengthen the red rice supply market system in the two districts and to ensure consumers have sufficient availability and access to red rice now and in the future. Chapter Two analyses the capacity of the external market (still within Sri Lanka) to meet the need of the target population for milking cows, the constraints they face in accessing milking cows, and actions that can be taken to improve accessibility to cows. Based upon this analysis, recommendations are provided to expand the capacity of the market system for milking cows so that resettled households can expand their income earning opportunities in dairy. Chapter Three has focused on three key areas of the market system for credit services: credit providers in the study locations; challenges faced by the local population to access credit; and opportunities that exist to open-up access to credit. The report recommends actions to re-capitalize community-based organizations active in financial lives of households; to improve the organizational capacity building of cooperative organizations, using financial literacy workshops/ training as a tool to link households with financial institutions; and advocacy for changes in the collateral and loan structure requirements of the formal banking system. Chapter Four analyzes the capacity of the market for masons to fulfill the demand for labour within the construction industry (to construct households in the resettled areas), and recommends appropriate interventions to increase the supply of local masons for the construction sector. The chapter concludes with a series of recommendations to promote and reform the vocational training opportunities currently available for the masonry sector, and to link these institutions with chief masons for advanced on-the-job training opportunities. Chapter Five spells out the main issues faced by the local population with respect to groundnuts – how to maximise their production and the potential of the market to absorb an increased supply if farmers in Kilinochchi and Mullaitivu reach their production potential in groundnuts. Recommendations have been provided to address the constraints in the groundnut market system that currently limits the potential for groundnut as an income source for rural households in Kilinochchi and Mullaitivu.


Executive Summary

The final stages of the war, in 2009, displaced nearly 300,000 people, mostly from the districts of Kilinochchi and Mullaitivu. The return and resettlement process began in the latter part of 2009. Preliminary relief interventions by the Government of Sri Lanka and various aid agencies have helped the returnees to restart their lives and livelihood activities. Despite this support, however, numerous assessments that have been carried out in the northern districts reveal that the returnees still face enormous challenges in terms of the lack of food security, high poverty levels and the lack of access to the means of production, which greatly hampers recovery and livelihood development. Moreover, the lack of access to markets prevents recovery of income generating livelihood of the returnees. It is apparent that the answer to most of the questions relating to post-conflict livelihood recovery relies on the understanding of the different market systems that play a critical role in the lives of the returnees.

The study undertaken by Oxfam GB, under the DRC consortium project with Oxfam Australia, used the EMMA methodology to examine five market systems of critical importance to the population of Kilinochchi and Mullaitivu: red rice, masonry, credit, groundnut and milking cows. These market systems were identified through careful consideration of their impacts on two important parameters: food security and income generation. As such, red rice was considered the most important market for food security and other markets were selected for their importance in terms of income generation or livelihood expansion.

The key questions adopted in this study included: who are the actors in the respective markets; what are the gaps in the demand and supply; what are the major constraints affecting returnees’ access to these markets; how access to these markets could be improved; and what specific support can be provided to improve access to the market. The study adopted primarily a qualitative approach. Household interviews, focus group discussions and key informant interviews are the specific tools deployed to collect data in the field. Five teams were formed and each team was responsible for collecting data relating to a specific market system. The teams also developed the market chain map of each market system to identify the constraints and possible responses that could improve the situation. The analysis of the groundnut market shows that current levels of production in both Kilinochchi and Mullaitivu is only a small fraction of the potential, and the national demand for groundnuts is sizable enough to absorb massive increases in production. Although there is good potential for the cultivation of groundnuts as a cash crop, the study identified several barriers in this market system that currently prevent market expansion - low availability of quality inputs, lack of irrigation and storage facilities and the lack of working capital.

The analysis of the credit market system found that there is a wide array of credit options available to households in the two districts. However, access to these opportunities is dependent on a variety of criteria including how well established a household is in the community, membership in different community and cooperative groups, previous creditworthiness, current asset holdings and connections to neighbours or community officials. The analysis of the masonry market focused on housing construction due to the relative ease of quantifying demand for housing due to government and aid agency support for housing schemes and owner-driven housing programmes. However, the analysis does recognize that the demand for masonry


labour from the non-housing segment of the industry is significant and attempts to understand how these construction projects will influence the masonry market system. The study finds that the masonry market system is functioning fairly well. Due to an insufficient supply of masons from Kilinochchi and Mullaitivu, a large number of masons and masonry workers have migrated from other districts to fill the demand for skilled labour. This outside presence and the anticipated large demand in non-housing construction suggests that there are ample opportunities for local workers to engage in the masonry market system as unskilled workers, semi-skilled workers or as skilled masons. The analysis of the market for milking cows shows that the supply of cross-breed cattle is very low throughout Sri Lanka and is not sufficient to meet the replacement needs of the total population in order to reach pre-conflict milk production levels. Government policies seeking milk self-sufficiency at the district level effectively limits the movement of cows across district boundaries, which significantly constrains the market system from meeting the high demand for crossbreed cows.

The analysis of the red rice market system shows that Kilinochchi and Mullaitivu districts produce a net surplus of red rice, and send roughly 50% of this production to neighbouring districts that have lower levels of production. As a result, the supply in Kilinochchi and Mullaitivu is sufficient to meet the needs of the local population, but consumers face limited ability to access this supply due to their low purchasing power. Other factors such as capacity constraints of the local institutions such as cooperatives, lack of storage facilities and the lack of land availability also influence market access in this sector. Based upon the analysis of these five market systems, the report makes a number of recommendations for policy and programmatic interventions that should support the newly returned population in their efforts to improve their household food security and income. The recommendations link relief and rehabilitation with development and are focused on ways to develop critical market systems, and thereby livelihoods opportunities, in a longer-term sustainable manner. It is hoped that both government and non-government agencies, practitioners, policy-makers and donors will consider the main findings of this report in the design and implementation of future policies and programmes for the north of Sri Lanka.


Acronyms

ACTED ALDL AP&H BOC CBO EMMA FAO FCS FFCS FO GA GIZ GN GoSL HNB IDP ILO LIBCO LKR MT NAITA NCRCS NGO NHDA NLDB OJT PAMP PIN PTF TCCSU UNDP VDO VT WFP WRDS

Agency for Technical Cooperation and Development Agro Livestock Development Loan Department of Animal Production & Health Bank of Ceylon Community based Organization Emergency Market Mapping Analysis Food and Agriculture Organization Fisheries Cooperative Society Federation of Fisheries Cooperative Societies Farmers Organization Government Agent Gesellschaft f端r Internationale Zusammenarbeit Grama Niladhari Government of Sri Lanka Hatton National Bank Internally Displaced People International Labor Organization Livestock Breeders Cooperative Society Lankan Rupees Metric Tonne National Apprentice and Industrial Training Authority New Comprehensive Rural Credit Scheme Non-Government Organization National Housing Development Authority National Livestock Development Board On Job Training The Poverty Alleviation Micro-finance Project People in Need Presidential Task Force on the Development and Security of Northern Province of Sri Lanka Thrift and Credit Cooperative Societies Union United National Development Program Village Development Organization Vocational Training World Food Programme Women Rural Development Society


Table of Content

Chapter 1 1.1 Rice Market System 1.2 Target population 1.3 The Market System 1.4 Key findings 1.5 Recommendations 1.6 Response Options Framework

11 11 11 12 18 21 24

Chapter 3 3.1 Credit Services Market System 3.2 Target population 3.3 The Credit Market System 3.4 Key findings 3.5 Recommendations 3.6 Response Options Framework

43 43 43 45 52 55 57

Chapter 5 5.1 Groundnut Market System 5.2 Target population 5.3 The Groundnut Market System 5.4 Key findings 5.5 Recommendations 5.6 Response Options Framework

75 75 75 76 79 82 86

Chapter 2 2.1 Milking Cow Market System 2.2 Target population 2.3 The Market System 2.4 Key findings 2.5 Recommendations 2.6 Response Options Framework

Chapter 4 4.1 Masonry Labour Market System 4.2 Target population 4.3 The Market System 4.4 Key findings 4.5 Recommendations 4.6 Response Options Framework

27 27 27 28 33 36 39

59 59 59 60 63 71 73


List of Tables

S.N. Table 1.1 1.2 1.3 2.1 2.2 2.3 2.4 2.5 3.1 3.2 3.3 4.1 4.2 4.3 4.4 4.5 5.1 5.2 5.3

Page

Analysis of Red Rice Need and Local Production Recommendations Rice Market System Response Options Framework Cattle Production in Mullaithivu and Kilinochchi District Total Milk Production Per Day in Mullaithivu Milking Cow (Cross Breed) Requirements for Mullaithivu and Kilinochchi Districts Recommendation Milking Cow Market System Response Option Framework Approximate Population Group Representing Different Livelihood System Sources and Conditions of Credit Response Options Framework Housing Status in Kilinochchi and Mullaithivu Housing Contribution Needs and Present Supply and Demand Common Infrastructure Construction Kilinochchi and Mullaithivu District Recommendations Credit Services Market System Response Options Framework Ground Nut Market System Actors Target Group Ground Nut Producers and Gaps Recommendations for Ground Nut Market System

19 22 24 28 32 33 37 40 43 51 57 63 64 67 72 73 78 80 83

List of Figure

S.N Figures 1.1 1.2 2.1 2.2 3.1 4.1 4.2 5.1 5.2 5.3

Seasonal Calendar Red Rice Cultivation in Kilinochchi and Mullaithivu Red Rice Market System Map Seasonal Calendar Milking Cow Market System Milking Cow Market System Map Credit Services Market System Map Seasonal Calendar for Masonry Market System Masonry Market System Map Seasonal Calendar for Ground Nut in Kilinochchi and Mullaithivu Ground Nut Market System Map Response Framework Map for Ground Nut Market System

Page 12 13 28 29 44 60 61 76 77 87


Emergency Market Mapping and Analysis Sri Lanka

11

Chapter 1 1.1 Rice Market System

Red rice is the primary staple food consumed by households in Northern Sri Lanka. In Kilinochchi and Mullaitivu district, red rice paddy is widely cultivated to keep for farmer’s own consumption and to sell in neighbouring districts where red rice production is not as strong. Although this assessment has found that the majority of the population of Kilinochchi and Mullaitivu produce enough red rice to meet their own consumption needs, there is a significant group of households without access to land who rely on the market to meet their red rice food needs. This market analysis seeks to better understand the availability of red rice in local markets for net consumers and any constraints facing the market system in delivering an adequate supply of red rice to those households who need it. Specifically, this market analysis will consider three key analytical questions regarding the red rice market system: a) b) c)

What is the capacity of the red rice market system to meet the need of the target population? What are the constraints for the target population to meet their needs for red rice after resettlement? What are appropriate interventions to support the target population to meet need for red rice after phase out of food aid?

1.2 Target population This analysis is focused on the conflict-affected and resettled population in Kilinochchi and Mullaitivu districts in the Northern Province of Sri Lanka, totaling 300,000 people. Red rice is the primary staple food for the population of Mullaitivu and Kilinochchi districts, and as such, this paper analyzes the red rice market system as a supply market which is critical for the food security of consumers in the two targeted districts. As per information gathered from the Department of Agriculture and the Department of Agrarian Development, 51,110 households, the majority of the population of the two target districts, are farming households producing red rice. These households cultivate an average of 3 acres of paddy land during the main rainy (maha) season (see seasonal calendar below) and can have annual household red rice needs through this one harvest alone. In general, households with productive paddy land produce more than their household food needs during the rainy / maha season.

Those households who rely on the market to purchase red rice to meet their staple food needs are either landless or lack access to sufficient land to produce enough red rice for their household needs. This group of consumers represents a specific focus for this analysis. This group includes those resettled families of Kilinochchi and Mullaitivu districts who currently depend solely on local market supplies for red rice as well as the families that are yet to be resettled and who will begin to rely on the red rice market system for food in the coming months. The former, constituting 11,456 households1, received food aid for the first nine months after resettlement, but this assistance has ended and the households are now expected to meet their own consumption needs. However, they still lack the land, income, and/or assets to cultivate enough to meet their own consumption needs.


12

Emergency Market Mapping and Analysis Sri Lanka

The latter group, constituting 2,950 households, is currently still located in displacement camps. Once resettled, they will receive a food aid package which includes 50kg of white rice per month for a period of nine months. However, the assessment has shown that even food aid recipients are active participants in the red rice market system. White rice provided as food aid is widely traded with millers and traders for red rice, often at a very high loss (1.5 kg of white rice will trade for 1kg of red rice), meaning that households receiving food aid are still engaging in the red rice market system and reliant on its functioning to meet their food needs.

Figure 1.1 - Seasonal calender Red rice cultivation in Kilinochchi and Mullaitivu Acttivity Food or Income Source

Who?

J

F

M

M/W

Transplanting

M/W

Harvesting

M/W

X

X

M

X

X

Weeding/Fertilizer application Selling red paddy

M

J

X

Land preparation Direct sowing

A

M

J

A

S

O

X

X

X

X

N

D

X X

W

X

Rainfall

Drought

Employment – Locally (mainly paddy season) Employment outside-casual labour

M/W

X

X X

M\W

Paddy supply in the market Price of red paddy

Vegetable cultivation at highland Cropping pattern (saline soil)

L

X

X

L

Fallow

X

X

X

X L

L

H

H

Redpaddy

(Key : Yala season cultivation which accounts for only 40 % of main season rice; X: Maha season which is main season rice; M: Men; W: Women; H:High and L:Low)

1.3 The Market System The market map below is a visual depiction of the red rice market system in Kilinochchi and Mullaitivu districts. It depicts the linkages and functioning of the market as it currently is, including key constraints affecting the market system. Notably, the market identifies the relative quantities of red rice traded between different actors and the prices. The following sections analyze how this market currently functions to meet the food needs of those households dependent on the market to supply sufficient amounts of red rice for consumption.

Source: District GAs office in Kilinochchi and Mullaitivu


Demining and handover of cultivable land

Key infrastructure, inputs and market-support services

Seed and Subsidized Fertilizer

Millers N=124

Middle Men N=275-300

Cooperatives N=10

Land

Irrigation

Partial disruption

Major disruption

Injected from outside

Target outside

Target groups

Colour Key

Consumers N=11456 HHs

Total HHs need to be resettled N=2950 HHs

P=LKR 36-41;V=7000-7500Mt

P=LKR 36-41;V=680-695Mt

P=LKR 35-36; V=595-1645Mt

Symbol Key Critical issue

WFP Food Aid (white paddy) V=1728Mt

Less Economic opportunities

Farmers Organization Aid Agencies

Outside Districts V=171105-193055Mt

Dept. of Labour

Sri Lankan Armies and Police

Storage/Warehouse

Credit Facilities and Insurance

Retailers N=1000-1100

P=LKR 31-38; V=7000-7500Mt

Extension Services

P=LKR 25-31; V=8000-10000Mt

P=LKR 25-31; V=72800-75000Mt

P=LKR 23-28;V=170000-190000Mt

Agro Machineries and tools

Contract Farmers N=2480 - 3100

Total Farmers N=51110 HHs

Presidential Task Force

District Administration

P=LKR 35-36;V=1105-3055Mt

Paddy Marketing Board

Department of Irigation

Dept. of Agriculture

P=LKR 28;V=1700-4700Mt

The market chain: market actors and their linkages

Price Regulation

The market environment: institutions, rules, norms and trends Dept. of Agrarian Increased Development Input Cost

Figure 1.2- Rice Market System Map Emergency Market Mapping and Analysis Sri Lanka

13


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Emergency Market Mapping and Analysis Sri Lanka

Description of the Market Chain Actors

Farmers

As per the information provided by District Agrarian Services the total number of red rice producing farmers in both districts is 51,110, which comprises almost 84-85 per cent of the total number of households. Red rice farmers are the only source of red rice in the district, and produce a significant surplus during the main maha season and the dry yala season. During the maha season, farmers cultivate an average of 3 acres (with paddy landholding range from 1 – 25 acres per household) and are able to meet their own red rice seed and cereal needs as well as sell a large portion of their harvests through cooperatives, directly to millers, and to middlemen. In general, one-half of an acre is sufficient to produce the red rice for farmers’ own consumption, as well as enough seed for the next season. Even keeping this seed for their own use, most paddy farmers manage to sell about 80% of their red rice production, either in the local market or in markets in other districts. During the yala season, when irrigation is required for production, only about 40% of the land area is cultivated and the majority of the paddy produced is sold to middlemen from Jaffna and Vavuniya where demand for red rice is high because it is not cultivated in those districts in yala season. The high demand in Jaffna coupled with a lack of paddy storage facilities in the target districts and farmer’s debt compels farmers to sell their produce immediately after harvest at lower prices than what is guaranteed by the government. Cooperatives are the mechanism through which the government purchases red price at guaranteed prices, however in Kilinochchi and Mullaitivu these cooperatives are organizationally weak and lack the capacity to purchase large quantities from producers. Red rice cultivation involves the entire family, with men primarily responsible for land preparation and irrigation, while women are involved in weeding and harvesting.

Red rice production has long been the traditional type of rice grown and preferred for consumption; however with the opening of the market access in the north following the end of the conflict, some producers are switching to white rice production for sale outside the districts. There is some worry among producers and officials that this shift to white rice production for sale outside the target districts, although and limited to a small land area, may expand and reduce production of red rice, which is preferred locally. Cooperatives

Prior to displacement, cooperatives provided inputs and credit at small scale to producers, and purchased paddy at a guaranteed price to sell to local consumers and to outside markets. Six cooperatives in Kilinochchi


Emergency Market Mapping and Analysis Sri Lanka

15

currently purchase paddy at a government-set guaranteed price (pay slightly higher than middlemen), but their capacity to trade paddy is significant limited. In addition to struggling to re-start activities following the conflict, and having low financial capacity, most cooperative properties, including office buildings, warehouses / storage facilities, trucks and other packing and transportation equipment, were destroyed or lost. Cooperatives in Kilinochchi are currently purchasing 1,400 to 3,000 kg per farmer, limited to their members only (prior to 2008, cooperatives purchased 3,000 kg of red rice from both members as well as other farmers). The cooperatives in Mullaitivu are yet to recover and to start trading rice. They are focusing on trading other food items and fuel as they have higher demand and benefit from economies of scale compared to red paddy. The Dept. of Agrarian Development is providing interest free loans to the cooperatives for purchasing paddy from producers at the guaranteed price, but cooperatives do not have sufficient capacity to take advantage of the credit opportunity and to manage large-scale purchasing, storage and sales of paddy. Middlemen

Miller

Around 300 middlemen are regularly involved in supplying red rice to millers in Kilinochchi, Mullaitivu, Jaffna, Vavuniya and to a lesser extent to Colombo. As per the middlemen almost 50 % of the red rice production in the target area goes to markets outside Kilinochchi and Mullaitivu, the majority to Jaffna followed by Vavuniya and Colombo. The vast majority of the 50% that remains in Kilinochchi and Mullaitivu is handled by local mills. Yala season production in Jaffna is very low compared to Kilinochchi and Mullaitivu, and as such, farmers get a higher price for their yala season production. The prices paid to producers by middlemen range from LKR 23-24/Kg for Maha season and 25-28/Kg for yala season red rice. Farmers prefer selling to middlemen because they do not need to transport paddy to market, but middlemen pay LKR 3-4/kg less than the market value for paddy, except where the farmers’ organization are strong. 100% of middlemen are men. 124 rice mills are operating in both the districts2 with varying capacities. The millers are the main actors who are processing rice at the local level and maintaining a steady supply throughout the year. The millers store paddy and process according to the demand and sell milled rice to retailers and, to a lesser extent, directly to consumers. There is coordination among the millers and they actively transport rice from mills with surplus supply to those mills with low supply and high demand. The millers, however, can also hold paddy temporarily to influence prices, but this practice appears to be fairly limited due to the large number of milling actors in the market system. Both women and men are involved during the milling process and the business, with men responsible for the milling and machinery while women manage the sales and business aspects.

Source: District GA Offices in Kilinochchi and Mullaitivu Statistical handbook, 2010

2


16

Retailers

Emergency Market Mapping and Analysis Sri Lanka

Retailers are the primary source of milled red rice and other household supplies to the majority of the consumers. Almost all the retailers sell multiple commodities for household requirements rather than selling only red rice. The majority of the retailers are suffering from debt, borrowed to purchase rice and other commodities, while their volumes of sales have decreased. Income and sales are lower than in the last few years because of market imbalances. The sales price of red rice has decreased as supply has risen (production has increased - more people have resettled and there is more productive land available due to demining) but demand has remained weak – primarily due to the low purchasing power of local households. Retailers have adapted by selling red rice in small quantities, but also in 10 and 50 kg bags at a relatively cheaper price. Due to the unavailability of cash at the household level, most consumers purchase in very small quantities to meet their daily/weekly requirement. Food aid also depresses the volume of red rice sales for retailers.

Description of Key Infrastructure, Inputs and Market Services Storage & Warehousing

Irrigation

Community and cooperative-level storage facilities are important in ensuring a regular supply of rice to the local market. Almost every red rice producer sells his or her paddy immediately after harvest to middlemen at a price lower than the guaranteed price. Big landlords with more than 10 acres of land store their paddy to sell with higher price at the beginning of the yala season when demand from Jaffna increases. A lack of storage infrastructure limits cooperatives’ abilities to purchase rice at the guaranteed prices and to support their farmer members. Almost all the cooperative-owned warehouses have been destroyed during the conflict, but some of them in Killinochchi have been rehabilitated with the support of aid agencies, particularly ILO and FAO. Irrigation is one of the major constraints for red paddy production in yala season. There is high demand for the yala season red paddy in Jaffna and farmers are paid LKR 1-3 more during this season than in the Maha season. Increasing yala season production would also help in increasing supply in the local market during November-December. Several small and medium scale irrigation schemes have been completely/partially damaged during the conflict. Major irrigation sources in Killinochchi are under repair or fully functional; however of about 50 minor tanks, 25 are completely non-operational. This lack of irrigation severely limits the yala-season production and supply of red rice (and income for farmers).


Emergency Market Mapping and Analysis Sri Lanka

Land

17

Land is critical as it is the main resource for improving economic opportunities for the target group and increase the red rice supply during scarce months. Access to land entitlement will also support access to credit for efficient supply of red rice.

Description of the Market Environment

Aid agencies

The World Food Program (WFP) is currently providing a full food ration, including white rice as the main staple, to recently resettled households for the first 6 to 9 months following resettlement. Households frequently exchange the food aid rice for red rice at local mills and retail shops, at a significant loss in quantity. Normally 1.5 kg food aid white rice is exchanged for 1 kg of red rice. The beneficiaries consider food aid white rice to be of a lower quality than local red rice, and complain that the food aid rice is not easy to digest. Larger families (>4 members) cannot afford the quantity loss when exchanging white rice for red, and thus consume the food aid rice. According to retailers, food aid enabled the price of red rice to remain stable, but the costs of transportation still increased as a result of increases in fuel and labour costs. Similar complaints were heard from millers and middlemen.

Lack of economic opportunities and credit services

As the target consumers produce very little of their own red rice, merely ensuring production and the supply of red rice to the market may not be effective to fulfill the household need for red rice by the landless. These households have very little purchasing power and limited access to credit to start-up income generating activities, which constrains their ability to meet their food needs and limits market function – retailers face greater debt burdens because red rice sales are slow, which may limit retailers from stocking sufficient red rice to meet the needs of target population.

Presidential Task Force (PTF):

A high level Task Force (PTF) lead by the President of Sri Lanka has been formed to oversee relief, recovery and development interventions in the Northern Province. The recovery and development approach espoused by the PTF guides the direction of interventions in the post-conflict north, including policies on agricultural development and market support.


18

Emergency Market Mapping and Analysis Sri Lanka

Price regulation

The Government of Sri Lanka (GoSL) annually fixes a guaranteed price for red paddy as well as red rice - currently set at LKR 28 for paddy and LKR 60 for processed red rice. The GoSL does not buy the product but gives interest free loans to cooperatives to buy red paddy from farmers. However, only a few cooperatives have benefitted as they have limited storage and milling capacity. None of the actors interviewed with the exception of the cooperatives, mentioned that the price paid to farmers for paddy was equal or more than the guaranteed price, except in the case of yala season. The farmer organizations exist in most of the communities but most of them do not have capacity to bargain for a fair price.

Demining and handover of cultivable land

cultivatable lands are still under the control of SL army. Large portions of land have still not been demined. The demining process should be accelerated to expedite the resettlement process and the resettled families should have land entitlement.

1.4 Key findings

Gap Analysis The local market is providing sufficient production to meet the staple food needs of the consumers in Kilinochchi and Mullaitivu districts. Both Kilinochchi and Mullaitivu produce enough red rice to meet the demand from the two districts by cultivating red paddy in two seasons, except in villages where factors such as salinity and the lack of irrigation limits production to only during the Maha season. Despite the high levels of production, November and December are critical periods for the target population. During this time period, prices rise by LKR 4-5 per kg due to low red rice supply in neighbouring districts, and purchasing power is also very low because there are less labour opportunities during this time of year period and thus less household income.

The table below demonstrates the overall production surplus in the red rice market system in Kilinochchi and Mullaitivu districts. 51,110 farming families in both the districts produce around 260,000 MT and 120,000 MT of red rice in the maha and yala seasons respectively. Around 50% of the total red rice produced in the two districts is supplied to Jaffna, Vavuniya and Colombo. Around 20-25% of the total production (95,000 MT) is consumed by the producers for household food requirement and a further 10,500-11,000 MT is used as seed paddy. Hence, around 72,800 – 75,000 MT of red paddy, equivalent to 47,320 to 51,000 MT milled rice (according to millers and cooperatives, the milling yield ranges from 65-69%, depending on the paddy variety and moisture content) is available in the local market annually. The red rice consumption requirements of the target population fit well within these levels of red rice availability, meaning the local market is capable of meeting the full red rice needs. According


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Emergency Market Mapping and Analysis Sri Lanka

to the Department of Agriculture around 15-16% of the families do not have sufficient land for paddy cultivation. Therefore around 14,000-15,000 families depend on the local market to meet their red rice consumption needs. Additionally, focus group discussions revealed that an average household with four members requires 1.5 kg of red rice daily, making the total annual need for red rice to be 7,500 to 8,000 MT.

Table 1.1- Analysis of Red Rice Need and Local Production3

Target Group

Number of Household Households in Need Need

Other aid received

Total requirements from the market

Total available in the market

Families receiving food aid and marketdependent households to meet food needs

14,406 (2950 to be resettled and 11456 landless depending on local market supplies)

720 MT Food Aid Rice

7,059 – 7,924 MT

47,320-51,000 MT

7,779 – 8,644 MY (45-50 Kg / month / household)

Household Income Gap ACTED and PIN estimate that the monthly household cash requirement to meet household needs ranges from LKR 13,701 to 16,220, and that of this income 44-59% is spent on food4. Focus group discussions conducted during this EMMA estimated that LKR 2,250 – 2,500 per month was spent on red rice alone. The main sources of income for landless households to meet these needs is through agricultural labour5 , and wages range from a minimum of LKR 600-750/day to LKR 1,200/day for skilled labour. Provided a labourer is fully employed 20 days a month at the minimum wage range of 600-750/ day, monthly earnings will range from 12,000 to 15,000, only partially within the range necessary to meet household needs. Additionally, the estimate of 20-days of work per month is likely to be overly optimistic. It does not take into account factors such as the seasonal nature of agricultural labour or the time needed for families to rebuild their own homes and resettle themselves, both of which suggest that actual employment is much less than 20-days per month throughout the year. For women-headed households, this situation is even worse as the daily wages paid to women are about 50% those paid to men for the same work, meaning that female-headed households cannot meet the minimum income requirements for food and livelihood needs.

Source: Analysis of EMMA study ACTED and People in Need (PIN). Expenditure Patterns of Cash-for-Work versus Non Cash-for-Work Households within a Food Security Context. June 2011 5 Both focus group discussions conducted during this assessment as well as the previous EMMA of rice markets in northern Sri Lanka (see Meissner, Laura. Emergency Market Mapping & Analysis (EMMA) Report: Rice Market System, Northern Province, Sri Lanka. USAID/OFDA, March-April 2011) reports roughly 30% of households depend on labour market, predominantly agricultural labour during the paddy season. 3 4


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Emergency Market Mapping and Analysis Sri Lanka

Market Analysis Although red rice production is sufficient for the needs in the district, the market is facing several key constraints that are limiting how well it can function to meet the needs of target consumers. These constraints on market functioning are listed below.

A. Household Purchasing Power: The target population’s reliance on inconsistent wage labour, particularly agricultural labour, is a constraint on the landless households’ ability to access the red rice market system. There is ample supply of rice, but without the necessary income on a consistent basis accessing sufficient quantities of rice to meet household needs is challenging, particularly during November and December when prices increase (due to the high demand from Jaffna and the neighbouring districts) and labour opportunities are limited. Many households are in debt to retailers, from whom they purchase rice on credit and are unable to repay. Retailers too face reduced income and slower turnover of their stock, making it difficult to repay their supplier credit and restock. B. Cooperatives – Prior to the end of the conflict, cooperatives bought large quantities of rice at guaranteed prices from producers and sold this to millers and consumers at competitive prices, often slightly less than retail. However, these cooperatives are currently struggling to re-establish themselves following the conflict, and have lost personnel, management capacity, funds, trucks and transportation equipment, and storage facilities. Without this capacity, cooperatives are currently functioning at a very low level and cannot function as a reliable buyer or seller at the same scale. Cooperatives are currently selling only very little to consumers, and buying a fraction of the preconflict quantities of paddy from producers.

C. Warehousing and storage: Almost all the cooperative-owned warehouses were destroyed during the conflict, severely limiting the ability of the cooperatives to function as a government subsidized buyer and seller of rice. Some cooperative warehouses have been reconstructed with support of aid agencies in Killinochchi, and are currently functioning at full capacity; however there are many more which have not been restored.

D. Land availability: Some cultivatable land is still undergoing mine clearance. This limits further growth of red rice production and could have long-term consequences for the supply of red rice in the market. Further, sea water intrusion in the agricultural land is limiting red rice production only during maha season, making ground water inappropriate for irrigating paddy fields due to high levels of salinity. The impacts of such deterioration of paddy land were observed in Killinochchi district. E. Food Aid: Food aid is influencing the market system by effectively reducing the demand for red rice and possibly contributing to a shift in dietary patterns away from red rice. Despite the significant surplus supply of red rice in the target areas, the less preferred white rice continues to be imported into Kilinochchi and Mullaitivu as food aid. Food distributions reduce the need for households to rely on the market for food, dampening the livelihood and business opportunities for local retailers. Additionally, the long duration of households consuming food aid rice (up to several years for those families who have not yet been resettled and remain in the IDP camps) has the potential to change dietary patterns and further reduce the demand for red rice.


Emergency Market Mapping and Analysis Sri Lanka

21

Anticipated functioning of the market system in the future? For the most part, the market system is anticipated to continue exceeding the red rice market needs of the local consumers, and serve as a net red rice exporter to other districts where red rice is in demand. However, many farmers and officials worry about declining production in Kilinochchi and Mullaitivu due to a variety of factors including lack of sufficient livestock to naturally fertilize the land, very little red rice varietal improvements since the start of the conflict, and a small but potentially growing shift to white rice production for sale outside the districts. Although red rice yields may decrease in the long-term without further developments, this is expected to be offset by new lands coming under cultivation as land is demined and resettled households re-start cultivation. There is a slight possibility that as food aid is completely phased out prices for red rice will rise and demand from the market increases, but food aid currently represents such a small percentage of the current market supply that the impact of its phase-out may be negligible. Overall, market prices for red rice will likely stay stable over the coming years.

Gender Analysis

Both men and women are engaged in red rice cultivation, but the paddy sector has traditionally been dominated by male members of the family from generation to generation. Men normally do planting whereas female involvement is high only during the weeding periods and during post-harvest activities like drying, rice pounding and milling at very small scale. Despite this work, women are paid only 50 per cent of the normal wage rate for men. Throughout the red rice supply chain, the various actors are predominantly men, except for a small number of women involved in the retailing business. Women have limited control over income and in most of the cases men decide on how to spend the income. For these reasons, women-headed households face particular difficulties in meeting their household food needs through wage labour in paddy fields. This access to financial resources is further limited by male control over farmers’ organizations as well as the traditional land entitlement process which endows male household members with land ownership. Involvement in the farmers’ organizations and land title are the prerequisites for accessing soft loans offered by various financial institutions as well as subsidized inputs from the Department of Agrarian Services, meaning that many women and in particular femaleheaded households face very tight financial and credit constraints.

1.5 Recommendations Based on the market capacity and the functioning of the market system, this analysis has identified several key opportunities for programmes and policies to improve the delivery of red rice to landless and recently resettled consumers, and thereby improve food security.

Both direct and indirect interventions are necessary to improve household access and ensure continued availability of red rice. Direct support is recommended to increase consumer household’s purchasing power using cash transfers, to improve income-generating opportunities through skillbuilding and supporting homestead production such as gardens or poultry as a food and income source. Supporting the diversification of livelihoods options for the newly resettled population should increase their purchasing power and thereby their access to red rice in the local market.


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Emergency Market Mapping and Analysis Sri Lanka

Indirect interventions targeting market actors are recommended to improve the functioning of farmers’ cooperatives, to repair storage facilities that were damaged during the conflict and to repair irrigation infrastructure. Storage facilities in particular were identified as an intervention that could ensure access to red rice for the target group (households dependent upon the market supply of red rice for consumption) at a lower price since storage facilities would motivate farmers to trade red rice at the guaranteed price. Additionally, this analysis shows the need to advocate for equal wage payments to women as well as a shift in food aid programming to cash or voucher transfers instead of imported food aid.

Table 1.2 - Recommendations Rice Market System

Effect on market system and target group

Key risks and assumptions

Timing and feasibility

Remark

Possibility of inflation

Highly feasible and appropriate for June-August

Source of income for target group and support to production

Improve financial access to red rice Cash for income and other household generation needs and support training and input skill-building for support income generating activities.

All trained beneficiaries may not adopt acquired skill

Highly feasible preferably prior to termination of food aid. Immediately for families not receiving food aid currently

Source of income

Rehabilitation of cooperative warehouses / storage facilities

High (to be The warehouse completed by the may be used for Indirect response harvest of maha other purposes by season i.e January the cooperatives 2013)

Recommended Response

Increases financial access to red rice, Cash for promotes buying work (small from local retailers, scale disaster and increases yala mitigation season red rice structures and supply through irrigation repairs) improved irrigation infrastructure

Steady supply of red rice; enables cooperatives to link with and take advantage of governmentsubsidized loan programmes for buying paddy


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Emergency Market Mapping and Analysis Sri Lanka

Replace inkind food aid by a cash or voucher transfer programme to meet food requirement for the families yet to be resettled

Support for homestead garden and poultry production (seeds, poultry and tools) Advocacy for equal wage rate for men and women

Promotes local market system and improves access to preferred food items

The local traders Highly and cooperatives feasible before agree to supply on resettlement negotiated price

Possible to decrease spending on some food from market and to increase income generation opportunities

All beneficiaries for the intervention can allocate time

High, immediately Livelihood needs

Men may be reactive unless they realize the benefits at HH level

Highly feasible and immediately

Increases household income to meet food and livelihood needs, particularly important for female-headed households.

Survival needs

Livelihood needs


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Emergency Market Mapping and Analysis Sri Lanka

1.6 Response Options Framework The response options framework is an EMMA tool to document the brainstorming process used in identifying the best response recommendations based on the market system. The table below contains the long list of ideas and concepts considered by the market analysis team when thinking through the most appropriate responses for the red rice market system.

Table 1.3 - Response Options Framework

Response Option

Advantages

Cash for work (small scale disaster mitigation structures)

Choice to fulfill their immediate needs

Cash for training for income generation training and input support

Increased financial access to red rice

Rehabilitation of cooperative warehouses

•Fair price to farmers and continuous supply of red rice •Opportunity for cash for work

Rehabilitation of cooperative rice mills Conditional cash grant to repay debt

• Break monopoly of millers • Rice bran as a byproduct for livestock

The consumers can repay their debt and have easy access to red rice from retailers and millers

Feasibility (High, low, medium and Stakeholders Disadvantages why?) and timing (short, medium, long-term)

Inflation

High for short term (June to August)

Govt., aid agencies, I/ NGOs

High (to be completed by the harvest of maha season i.e January 2013)

Department of Agriculture

High Immediately before terminating food aid Does not guarantee fair price to the target group Less friendly to the environment

The intervention may increase defaulters in long run

Low (prior to harvest season)

Department of Agriculture, Department of Agrarian Development

Farmers Organizations, Department of Agriculture

Medium (Prior Govt, aid to termination agencies, I/ NGOs of food aid)


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Emergency Market Mapping and Analysis Sri Lanka

Voucher transfer for families to be resettled Support for homestead food production (seeds, poultry and tools)

• Promote local market system • Improve access to preferred food items • Target group has been using food voucher at the distribution point

Quality control may be tedious

Help meet the household food demand and promote economic activities

Advocacy for The target groups can distribution of public produce red rice for their land to landless household requirement families

The issue may be politicized

As there is huge demand • Increase yala season in Jaffna cultivation to supply red Rehabilitation of the paddy rice in scarce months small scale irrigation produced in (Nov-Dec) facilities (reservoir yala season tanks and channels) • Allow opportunity for may not be cash for work available for target group Motivate aid agencies to mobilize locally produced red rice for food aid Lobby to create enabling working environment for agencies

Ensure access to market information system (MIS)

Reduce aid agencies cost of importing rice and target group get local rice as per their preference More funding opportunities to help recovery This will help regulate price and fair trade

Advocacy to expedite Improved target group’s the demining access to land process

Increase in demand may increase price of red paddy

High (immediately after resettlement)

Govt, aid agencies, I/ NGOs

High Immediately

Govt, aid agencies, I/ NGOs

Medium Immediately before the yala season planting season (June 2012)

Govt, aid agencies, I/ NGOs

High Immediately

Paddy Marketing Board, Farmers Organization

Low Long term (After the situation gets stable)

Agencies with diverse interest might influence Medium Immediately local people towards their agenda

Department of Labour

Medium Before harvest Extension Services season (January 2013) Low Immediately


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Emergency Market Mapping and Analysis Sri Lanka

Advocacy for equal wage rate for men and women through cash for work program (offering rate which reflects market rate)

Increase income of women by up to 50%

High Immediately

Expedite the resettlement process

Low After demining

Advocacy to compensate loss of cultivable land due to military encroachment

Ensure access to cultivable land

Low Immediately

Conditional cash grant for rehabilitation of house

Department of Labour, aid agencies/I/NGO


Emergency Market Mapping and Analysis Sri Lanka

27

Chapter 2

2.1 Milking Cow Market System

Milk production is a rapidly growing industry in the Northern Province of Sri Lanka. Since the conflict ended, many new private sector and semi-governmental actors have moved into the areas of dairy development such as milk collection and establishing processing centres. Milk production has long been a source of food and secondary income in the northern districts, but the arrival of businesses such as Nestle, Milco and others has raised the interest and profile of milk production as an income earning strategy. This is increasing demand for higher yielding crossbreeds that can produce three-times the daily milk production of the local cow varieties. This market analysis focuses specifically on the availability and supply of cross-breed milking cows to meet the demand for farmers seeking to both replace their cattle lost during the end of the conflict and to expand livelihood options through milk production. This study on the milking cow market system should serve as a useful complement to other studies that are being commissioned into the milk production market system (e.g. forthcoming UNDP report). Specifically, the milking cow market system analysis will seek to answer three key analytical questions: a)

b) c)

What is the capacity of external market (still within Sri Lanka) to meet the need of the target population for milking cows? What constraints does the target population face in accessing milking cows? What actions can be taken to improve the target group’s access to milking cows?

2.2 Target population

The target population for this analysis is the conflict-affected and resettled population in Kilinochchi and Mullaitivu districts, Northern Province, Sri Lanka, totaling 230,800 people. There are three main livelihood patterns taking place in these districts, mainly fishing, agriculture and wage labour. Approximately 20% of this population (over 13,761 farmers) engages in livestock raising as a significant livelihood strategy, and as such, cattle (milking cows in particular) are a major livelihood asset.

The entire target population was displaced from their homes at the end of the conflict in 2009, and most lost all livelihood assets, including livestock. Cattle were abandoned during displacement and, left alone, they moved randomly through the districts. When the return programme started, some farmers were able to re-capture their herds or benefitted from a FAO cattle redistribution programme. However, these livestock holdings are still very small relative to pre-displacement herd sizes (see table 2.1) and many households did not recover any livestock at all. As a result, the target population is relying heavily on the milking cow market system to restock their cattle and to restart livestock-based livelihoods. Additionally, with the end of the conflict in the north private companies began collecting milk and demand for milk skyrocketed, making intensive milk production a profitable livelihood activity.


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Emergency Market Mapping and Analysis Sri Lanka

As such, resettled farmers are increasingly seeking to replace their lost herds with cross breed varieties that yield more milk. Additionally, the utility of cattle has shifted from the primary importance as draft power to a source of income in the form of milk production and sales. The seasonal patterns of the milking cow-based livelihood systems are illustrated in the following seasonal calendar:

Table 2.1- Cattle Population in Mullaitivu and Kilinochchi Districts (Current & Reference year) No

1

2

District

Mullaitivu

Kilinochchi

Cross breed

Local Breed

Cross breed in Cross breed in Local breed in Local Breed in 2011 2007 2011 2007 865

500

1,365

1,344

77,135

1,000

34,500

2,344

111,635

120,000 54,000

174,000

Source: Government Animal Production and Health Department Statistics from Kilinochchi and Mullaitivu, 2007 and 2011

Figure 2.1 - SEASONAL CALENDAR MILKING COW MARKET SYSTEM Factors

Jan

Price of milk cow

Supply / Quantity of cows Employment - cattle management Disease outbreaks

Feb Mar Apr May Jun

HIGH

STABLE

HIGH

LOW

LOW

Fodder availability

HIGH

Capital Investment

HIGH

Flooding

Droughts

LOW

HIGH

Jul

Aug Sep Oct

Nov Dec

MODERATE HIGH

MODERATE

HIGH

MODERATE HIGH

MODERATE HIGH

2.3 The Market System The milking cow market system is characterized by a series of private and government-supported breeders working through the livestock cooperatives, middlemen and aid agencies to deliver cows to dairy farmers. This movement of cows is supported by a series of credit providers and extension support services, as well as by laws and regulatory bodies that govern (in effect restrict) the transportation of milking cows between districts. The map below is a visual depiction of the milking cow market system in Kilinochchi and Mullaitivu districts.


V = 200

V = 1020

P = 65,000 LKR

Grazing land

Department of Animal Production and Health

V = 50

LIBCOS

Middleman

Import & Export Ministry

P = 65,000 LKR

P = 65,000 LKR

P = 65,000 LKR

Customs

LIBCOS

Bank

Inland Revenue

V = 1000

P = 65,000 LKR

P = 65,300 LKR

P = 70,000 LKR

Dairy Infrastructure

Contract farmers/LIBCOs

Target groups

Colour Key

N=12,997HHS

Cattle Farmers Local Breeds

N=764 HHS

Partial disruption

Major disruption

Critical issue

Cattle Farmers High Breeds

V = 162

Milk Market Police

Private Companies/ input Providers

UN/INGO/NGO

V = 200

District Administration

Ports Authority

Symbol Key

The thickness of the lines indicates the volume of supplies, and the dotted line indicates the relationship of non-profit organizations that are mainly facilitating linkages between market actors and stakeholders.

Key Infrastructure, inputs and market – support services

Homestead Infrastructure for Cows

Private cattle Breeders

Contract Farmers N=200

NLDB Farms N=4

Private sector companies N=4

V = 162

The market chain: market actors & their linkages

Ministry of Livestock Development

The market environment: institutions, rules, norms and trends

Milking Cow Market System, Kilinochchi and Mullaitivu Districts

Figure 2.2-Milking Cow Market System Map Emergency Market Mapping and Analysis Sri Lanka

29


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Emergency Market Mapping and Analysis Sri Lanka

The Market Chain • Private sector companies: There are four private companies that breed milking cows in Sri Lanka, none of which are located in the targeted districts. These companies are located in Anuradhapura, Polanaruwa and Kurunagale districts and supply cross breed milking cows island-wide. These companies both breed their own cows as well as purchase animals from other districts, and contract with farmers to raise the cows until productive age. When cows are ready for sale, the companies sell their cattle through middlemen to farmers. The current price for Jersey-Shakiwal crossbreed milking cow is LKR 60,000 to 75,000, including the cost of transport and certification for shipping across district boundaries (LKR 2,500), compared to 30,000-45,000 in 2007. Currently these companies are operating at a very low capacity relative to the demand they are getting for orders. Customers are demanding up to 350 cows per month, but the companies are able to provide a maximum of 70 cows per month and rarely reach that level of supply. For most of the year, the private sector actors can only supply a small number of cows. Several companies have begun importing cross-breeds cows from Pakistan and India, but the import tax, associated costs of importation, and potential for livestock to not adapt well to the Sri Lankan environment means that imported cows are very expensive and a riskier investment for farmers.

• NLDB Farms: The National Livestock Development Board (NLDB) farms are attached to the government. Currently, the NLDB farms are focusing their efforts on increasing milk production in the districts in which they are located, in accordance with the government objectives to promote district-level milk self-sufficiency by 2016. The farms are located in Anuradhapura (1 farm), Polonnaruwa (1 farm) and Kurunagale (2 farms), and as such, these farms are providing cows only to these districts. NLDB supply to Kilinochchi and Mullaitivu is completely disrupted.

• Contract farmers-LIBCOs: Roughly 200 individual contract farmers in the adjacent districts have registered under the LIBCO (Livestock Breeders Cooperative Societies), which is attached with the Cooperatives Department. These societies are getting technical support from the Department of Animal Production and Health. The LIBCO has an exemption from the certification process needed to move livestock from one district to another, and the cooperative uses this exemption to assist farmers to purchase cows from breeders outside the district (mainly from Jaffna) contracted directly with the LIBCO cooperative. They have the capacity to provide 200 milking cows annually. The LIBCOs then provide these cows to individual farmers at the community level. However, since the permit restrictions have gone into effect, LIBCOs have also begun cooperating with aid agencies to supply milking cows to the target population through various agencies. The LIBCO societies were disrupted during the displacement, and in many areas these local-level societies have either not yet been reconstituted or are functioning at a low capacity. • Private cattle breeders: There are a limited number of private cattle breeders in the adjacent districts outside the target area, and there are no cattle breeders in the target area. The private cattle breeders provide cattle directly to the farmers and sometimes they provide through LIBCOs as well. The identified private cattle breeders are able to provide 50 per breeder annually.

• Government, UN, International NGOs, Local NGOs programmes: During the recovery stage of resettlement, a number of agencies have become involved in the dairy sector and have provided 1,000 cross breed milking cows to meet the demand after resettlement. This includes the government-


Emergency Market Mapping and Analysis Sri Lanka

31

sponsored Dairy Village programme recently started in the target areas by the Animal Production and Heath Department (AP&H) working through LIBCO to provide cattle, inputs and services as a comprehensive package for 20 cattle farmers at a time in one village. Once the first annual cycle is completed, the next 20 farmers will be selected in the same or neighbouring communities, with the same volume. The composition of the assistance is 50% grant and 50% is farmer contribution. The linkages between breeders, LIBCOs, aid agencies and the target population is dotted to indicate that this is a new supply channel for milking cows since resettlement began.

• Middlemen: The middlemen collect the cross breeds from cattle breeders and private companies outside the target districts and sell them to farmers. Often the middlemen have influence that have enabled them to obtain transportation permits to move cattle from the outside districts. Many cross breeds are sold through this channel annually, representing a significant source of cross breed cows for dairy farmers. • Cattle Farmers: Cattle farmers are divided into two categories on the market map, those raising crossbreeds and those raising only local cattle breeds. The dotted line indicates that an increasing number of farmers are re-stocking with cross breeds and are entering the crossbreed farmer box. Together, the two types of farmers are demanding access to crossbreed cows to improve their milk production and livelihood opportunities. Some cattle farmers in Mullaitivu and Kilinochchi are raising crossbreeds for their own use. Due to the significant demand for milk, many farmers increase their cow herds by reproducing their own cattle. There are over 13,700 cattle farmers in the two target districts, of which 764 own high-yielding cross breed varieties of cow.

The Market Environment

• Movement limitations – the most significant constraint on the milking cow market system is the certification process required to move cattle from one district to another. Very recently the Ministry of Livestock Development declared a policy of district-level milk self-sufficiency, and set an objective for the target districts to increase milk production by 60% by 2016. Because cattle populations throughout the north are very low relative to this ambitious target, the government requires a certificate of approval from the district authorities to transport cattle across district boundaries. Due to the high demand for cows in each district to meet the milk production targets, very few permits for transport are approved.

• Milk market: The high demand for raw milk is driving more farmers to engage in milk production and to demand more efficient, higher-yielding crossbreed varieties of cows. This milk is being demanded both by the local population for consumption as well as by private and semigovernmental corporations seeking to process milk and sell as value-added products, mainly milk powder. Since the conflict ended, milk companies, particularly Nestle, MILCO, and Kothmole have entered the northern districts and are purchasing large quantities of milk from local producers. These consumers are currently demanding over 40,000 litres of milk per day, of which nearly 70% goes to local consumption. Nestle, MILCO and Kothmole each command about 20%, 7% and 3%, respectively, of the milk produced locally, and each are seeking to increase their market shares (see Table 2.2, below). Due to this increasing market demand for raw milk from the target districts, there is vast potential to increase production. Many new farmers are attempting to enter dairy production, and resettled dairy farmers are attempting to restock their herds lost during the conflict. These efforts have created a large demand for milking cows.


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Emergency Market Mapping and Analysis Sri Lanka

Table 2.2 - Total Milk Production per day in Mullaitivu Market Actors for Milk Nestle

MILCO

Kothmale

Local consumption

Total Milk Production

Quantity

Units

8,400

Litre

27,295

Litre

3,000 600

39,925

Litre Litre

Litre

Source: Department of Animal Protection and Health

Market Inputs, Infrastructure, and Services Credit facilities: Several institutions offer loan schemes to farmers for expanding their dairy livelihoods. For example, the People Bank has a scheme to provide credit of up to LKR 40,000 to cattle farmers while giving 6 months grace period to repay without interest. However, farmers are not rapidly taking up these opportunities, to a certain extent because they are not familiar with the scheme, but to a much greater extent because farmers struggle to meet some of the basic criteria which are required to qualify for the loan. For example, in some instances farmers must demonstrate that they have a proper shed for cattle rearing, an ample source of water and the capacity to manage the cattle. Providing this investment upfront before accessing credit is difficult for many resettled households who are also struggling to house and feed themselves. Infrastructure: At the household level, many cattle farmers do not have the basic infrastructure such as a cattle shed and sufficient water sources necessary to manage and support high-yielding cattle varieties. Additionally, although the demand for milk is very high and there is significant public and private investment going towards dairy facilities, many areas of the target districts are still without the necessary infrastructure for milk collection and processing, including buildings, roads, transport networks, electricity and cooling facilities.

Extension Services: There is a limited number of department staff to provide extension services, with many of the positions remaining unfilled for long periods of time. The extension services department does not have the facilities or staff to assist the target population with the management and rearing of milking cows.

Pasture: Access to pasture land is a persistent problem for many communities in the target districts. There are large portions of land that still needs to be demined in order for cattle farmers to access pasture.

LIBCOs: The LIBCO societies serve a dual function in this market system, as both a key component of the market chain (as described above) as well as a support function for dairy farmers and the entire market chain. In addition to supplying cows, the LIBCOs offer a series of services to dairy farmers, connecting them to credit opportunities, supporting expansion of milk collection and processing services etc. Because of this dual role, the LIBCOs are an element of both the market chain as well as the infrastructure and support services components of the market map.


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Emergency Market Mapping and Analysis Sri Lanka

2.4 Key findings Gap Analysis: Milking Cows required by the target population The analysis below quantifies the number of crossbreed cows required by the target districts in order to reach pre-displacement milk production levels, as measured during a stable reference year (2007). Because total milk production is made up of both crossbreed and local varieties of cows which yield different quantities of milk, a comparison of total milk produced is used instead of comparing numbers of each variety. The total milk production gap estimated for the current year (2011) is then converted into the number of crossbreed cows necessary to bring the target areas back to 2007 production levels.

In reality, the demand for milk today is much higher than 2007 levels because of the rapid increase in private sector corporations purchasing raw milk from Kilinochchi and Mullaitivu districts, a market factor that was not present during the 2007 reference year. As such, the actual demand for milking cows is likely to be higher than estimated with a recent UNDP analysis of the milk market system suggesting that the gap between supply and demand for milk is widening annually6 . In addition, although this analysis focuses on replacement of milking cows with crossbreed varieties which offer improved livelihood options for farmers, it is very likely that a portion of the milking cow gap selected here will be met by increases in local cow herd sizes.

Table 2.3- Milking cow (crossbreed) requirements for Mullaitivu and Kilinochchi Districts 7 Reference Year (2007) District

Kilinochchi District

Mullaitivu District Total

Current year (2012) Required Agency Cross number distribution/ Breed of cross Individual Cow Gap breeds Purchases8

Milking Cows (Local + Cross)

Quantity of milk / day (litres)

13,750

28,575

8,750

18,038

10,538

1,673

312

1,361

30,336

62,117

19,498

39,925

22,192

3,541

1,100

2,441

44,086

90,692

Milking Cows (Local + Cross)

Milk Quantity Production of milk Deficit / day (litres)

28,248

57,963

32,730

5,214

UNDP and CEFE NET Market Analysis of the Dairy Sector: Opportunities and Challenges

6

1,412

Government Animal Production and Health Department Statistics from Kilinochchi and Mullaitivu, 2007 and 2011 Individual purchases reported by LIBCOs who facilitate purchases of crossbreed cows from outside the district.

7 8

3,802


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Emergency Market Mapping and Analysis Sri Lanka

Milk production estimations are based on government statistics of local and crossbreed variety cattle holdings in the target districts in 2007 and 2011, average daily milk yield per type of animal (6.3 litres/day crossbreed, and 2 litres/day local variety), and other factors including the proportion of cattle that are female, proportion of females producing milk etc. This analysis shows that in order to reach pre-displacement levels of milk production, a rather conservative target given the significant rise in sourcing of raw milk from the target districts by large food businesses, over 3,800 crossbreed cattle are needed. If this production level is to be met using local varieties, three times this number of cows is needed. As a result, there is significant demand in the milking cow market system for crossbreed cattle, but the market is also severely constrained and at present cannot meet this demand.

Additionally, the AP&H Department estimates that local production is capable of meeting only 35% of the demand for milk in Kilinochchi and Mullaitivu districts, the majority of that unmet demand being commercial demand for milk. This further illustrates the livelihood opportunities available for households who can access high yielding crossbreed cows.

Market Analysis: Ability of the market system to meet the need for milking cows As a livelihood input, the milking cow market system cannot meet the need for milking cows for many years to come without external support. Aside from aid agency interventions, the market supplies less than 500 crossbreed cattle per year to farmers. With the support of aid agencies and the government Dairy Village programme, a further 1,000 livestock were provided to the target population. However, at this rate it will take about three years just to reach 2007 milk production levels assuming all replacement is with crossbreeds. If fewer crossbreeds are supplied, then it will likely take longer to reach 2007 production levels because more than triple the number of animals would be required to produce the same milk quantities. Movement restrictions limit supply: The movement restrictions on cattle are one of the most significant barriers to the market system supplying more cows. The permit requirements have caused complete disruption in the supply of milking cows to the target district from NLDB farms, and from private breeders to INGO and UN agencies. The NLDB farms now focus exclusively on breeding cows for the districts in which they operate and aid agencies have begun to work through LIBCOs to supply cattle, resulting in a new market pathway between the LIBCOs and the aid agencies. Additionally, by limiting where cattle can be sold, the restrictions effectively reduce the market opportunities for breeders and force farmers to pay higher prices because of permit fees. It is very likely that this regulatory uncertainty will de-motivate breeders from increasing their breeding efforts, even despite the high demand they are already facing.

Low LIBCO capacity: Because of the cattle transportation constraints, the LIBCOs have assumed a central role in the market system and are acting as the primary connection between farmers and aid agencies and the different types of milking cow suppliers. Almost all LIBCO societies were disrupted or stopped functioning when communities were displaced, and since resettlement many are functioning at a low capacity or have simply not yet been reconstituted at the community level. Because of this limited capacity and the increased role they are playing in supplying milking cows, the LIBCOs are under quite a bit of pressure to perform and risk becoming a bottleneck to the whole market system without further organizational support or a removal of the restrictions on movement.


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Long lead times to replenish stock: The partial disruptions between middlemen and other direct suppliers to farmers is the result of low levels of crossbreed supply relative to the high need and demand. Currently, suppliers report that they are receiving a very high number of requests for crossbreeds that they cannot fulfill. They cannot fulfill the needs immediately because of the high lead-time required to breed cows and raise them to productive age. This process can take two to three years and given the sudden nature of the increase in demand it will take breeders several years to increase their capacity to meet the demand.

Demand dampened by lack of capital: Despite the high demand for crossbreeds, there are still many farmers who do not have the income or resources to invest in high-yielding milking cows, causing partial disruptions between suppliers (middlemen and private breeders) and farmers. Even though the demand for milk is high and crossbreed cows offer a very strong return on investment, these breeds also require greater upfront investment in terms of cow sheds, water sources and fodder than traditional varieties. Most farmers lost their livestock during displacement and need to purchase cows as well as the basic infrastructure, vet services and inputs to support them. The majority of recently resettled households do not have the resources to invest in crossbreed cattle, despite the high pay-off potential and the availability of credit schemes to support them in engaging in this livelihood strategy. Lack of capital at the household level and access to these credit opportunities (due to collateral, need to invest in sheds prior to receiving loan, etc.) also restricts the growth potential of this market system. Minimal impact of dairy infrastructure: Lastly, although the limited development of dairy infrastructure (collection points, processing centres, transportation networks, etc.) would appear to limit milk production and thus demand for milking cows, this influence is fairly small. Aid agencies, government departments and private companies are investing heavily in developing milk collection networks and the processing capacity is gradually increasing. Additionally, despite the infrastructure challenges, demand for local milk consumption is still very high (roughly 70% of all milk produced in target area) and private sector actors (such as Nestle, Milco, Kothmole) are interested in expanding collection from the target districts. So, although dairy infrastructure does require improvements in order to expand income opportunities for dairy farmers, it has minimal impact on the supply of milking cows.

Impact on farmers: As a result of the milking cow market’s weak ability to meet the demand for cows, farmers are unable to take advantage of, or to maximize, milk sales as an income strategy. Roughly 25% of the population in the target districts relied primarily on cattle farming for a livelihood prior to displacement, and a majority of the remaining agricultural households engaged in cattle rearing as a secondary income source. The low supply of cattle for restocking and the high prices (LKR 30,000 higher than in 2007) makes it difficult for farmers to re-stock livestock they lost during displacement, particularly as households are also attempting to meet other essential needs.

Anticipated functioning of the market system: Because of the long lead-times for cows to reach milkproduction age (roughly 2 to 3 years) it is not likely that the milking cow market system at the national level will be able to significantly increase supply for the next few years. Even if breeding efforts increase dramatically across the country, it will take several years before these cows enter the market system, however the restrictions on movement of animals will likely dampen any big increases in breeding efforts. On the demand side, demand for milk is anticipated to stay strong for many years as new milk transportation and processing systems come online and corporations increase their purchasing of milk from target districts. Dairy farming will likely remain a viable and productive livelihood strategy for


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Emergency Market Mapping and Analysis Sri Lanka

households, but support is needed for households to restock and for the market system to continue the supply of milking cows.

The current supply from the milking cow market system is roughly 1,400 cows annually provided to farmers in Kilinochchi and Mullaitivu. Considering that over 1,000 of these 1,400 cows were delivered by aid agencies, however, a continuation of this level of supply cannot be expected in the future. To replace the cows supplied by aid agencies, private companies could potentially enter the market and deliver 1,000 cattle per year with the remainder being provided by a combination of contract farmers and private cattle breeders in adjacent districts (especially from Jaffna).

Gender Analysis

Women participate throughout the market system starting from cattle breeding up to milk collection, with the exception of transporting and selling cows which is commonly left to men to handle. While men focus on cattle trading and transporting, the women are often those responsible for cattle rearing, taking out to pasture, collection of fodder etc. Among the institutional actors in the market system, women are active members in the LIBCOs as both farmers and as functionaries within the organization, and there are several female staff members attached to the Department of Animal Protection and Health, ranging from the Director to support staff. However, as these institutions continue to recover and grow following the end of the conflict, it is important to assure and expand female participation and ownership in the governance and management structures of these organizations.

The expansion of crossbreed cows will be a great benefit to women, many of whom directly benefit from the sale of milk. Higher yielding cows offer the potential for greater income generation. Additionally, because crossbreed cows must be kept in confined areas, there is the potential to reduce the work burden on women, who would traditionally care for cattle in the fields and take them out to pasture. This confined nature can also create secondary income opportunities out of the work that women normally pursue, such as fodder collection. Confined animals require fodder be brought to them, so there is the potential for women to get benefit from the collection and sale of the fodder.

2.5 Recommendations The milking cow system is functioning, but at a very low capacity relative to the demand, with few prospects to increase capacity in the near-term without outside assistance. There are several key actions that agencies can do to enable resettled farmers to pursue sustainable livelihood strategies linked with the dairy sector, and to support market actors to improve market functioning that will ultimately benefit the dairy farmers. These actions are summarized in the table below, and described in more detail following the chart.


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Emergency Market Mapping and Analysis Sri Lanka

Table 2.4 - Recommendations for the Milking Cow Market System

Recommended Response

Effect on market system and target group

Key risks and assumptions

Advocate for relaxing of permit requirements to transport cattle

• Frees up the market system to move cattle supply to areas of highest demand • Could reduce livestock prices

Assist dairy farmers to construct sheds and to access fodder for confined management of cows

• Can be accomplished by directly assisting producers or through assistance to LIBCOs • Would strengthen LIBCO as key actor to support the members increasing milk production. • Improves access to credit

• Government policy can be changed • Breeders can increase supply of milking cows to meet demand

Scale up the government’s Dairy Village approach to milking cow management

• Can be directly supported through government efforts or via NGOs utilizing a similar approach • Improves supply of milking cows and community management of dairies

Provide support and advocacy for importation of milking cows from India/Pakistan

• Implementation through private companies, agrarian department or directly by humanitarian agencies. • Will increase supply of highyielding varieties. • Will also increase price of milking cow due to import costs, and will require measures to improve farmer purchasing power.

Ample water source availability

• Government willing to scaleup or allow NGOs to utilize similar model • Requires supportive extension system and support services for communities

• No disease outbreak • Favourable policy on import

Timing and feasibility

Immediate

Highly feasible

Short to medium term approach Highly feasible

Medium to longterm approach to restocking milking cows Highly feasible

Short-term intervention to improve dairyrelated income of farmers.

Medium feasibility


38

Improve breeding practices through upgrading breeding technology, including adoption of improved artificial insemination practices.

Emergency Market Mapping and Analysis Sri Lanka

• Implementation through support to NLDB farms, LIBCO, or private sector • Provides the technology and systems to meet longterm demand of milk by local population and increasing private sector actors. • Potential to transform dairy into a key industry benefitting smallholders

• Technology transfer from other countries is appropriate for Sri Lanka • May require improved genetic engineering technology • Long timeframe to increase livestock supply

Long-term approach to increasing supply

Medium feasibility

Advocate for relaxation of permit requirements to transport cattle This intervention is recommended to relax the policy that limits the transport of cattle from the adjacent districts. Advocacy efforts should be directed at the Ministry of Livestock Development and at the local level authorities that approve the permits. This indirect intervention to relax the movement limitations would promote market integration, allowing cows to move from areas of surplus production in the country to areas where demand is high, as in Kilinochchi and Mullaitivu. From the suppliers’ perspective, relaxing the permit requirements will increase the potential number of farmers to whom the suppliers could sell, providing greater motivation to increase breeding efforts. From the farmers’ perspective, being able to purchase cows from other districts and a variety of suppliers will reduce cost, increase the possible volume of trade, and foster competition among producers.

Provision of conditional cash grants to assist dairy farmers to construct sheds and to access fodder for confined management of cows

In order to maximize milk yield from crossbreed cow varieties, intensive cattle management practices should be used instead of relying heavily on fodder. Many farmers do not have the ability to invest in these assets to improve their milk production capacity.

Support in the form of a cash grant – conditional on the construction of sheds and fodder production etc. – can have a doubly positive impact for cattle farmers. Not only would this assistance provide dairy farmers with the necessary household infrastructure for crossbreeds, but it also provides assets in the form of sheds, fodder supplies, water sources, etc. that can be leveraged for additional loans. Once infrastructure is in place, farmers can access credit to purchase cows, re-start dairy-based livelihoods, and rely on the sheds and pasture to protect their investments.

Scale up the government’s Dairy Village approach to milking cow management

Aid agencies should influence the government/line ministry to scale up the Dairy Village programme to more communities. The Dairy Village model brings a comprehensive package to cattle


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39

farmers including cows as well as associated veterinary and extension services. Fostering this network of services in concentrated areas allows service providers, particularly extension and veterinary agents, to focus on a geographical area that is manageable given their resources, yet still benefits all the farmers in that area. Aid agencies can support government efforts to scale up the Dairy Village programme or identify complementary activities to support new groups of villages in a manner that increases the numbers of people receiving livestock and services as well as expanding the network of service providers for greater community access.

Provide support and advocacy for importation of milking cows from India/Pakistan

Given the weak supply of milking cows in the Sri Lanka market system and the large-scale demand, aid agencies should consider either directly importing cows from India or Pakistan, or advocating for the government and private companies to take these measures. Such a measure could quickly address the availability of crossbreeds, but likely at a high cost and with the possible risk of imported animals not adapting well to the Sri Lanka environment. This indirect intervention would, however, rapidly restock households desiring to produce milk and greatly improve income opportunities for resettled farmers.

Improve breeding practices through upgrading breeding technology, including adoption of improved artificial insemination practices (sex semen)

A long-term recommendation to improve the supply of milking cows is to support the extension service department to upgrade breeding technology. By supporting the extension system to provide technical services in artificial insemination practices to cattle farmers the breeding of livestock can be decentralized to farm level. In the long-term, after livestock populations recover and stabilize, farmlevel artificial insemination and production of crossbreeds will assure sufficient supply at the necessary volume. New approaches, such as use of sex semen artificial insemination, which can guarantee a female calf, will help to lower the overall livestock population (reducing environmental impact) while at the same time maintaining production levels.

2.6 Response Options Framework The response options framework is an EMMA tool to document the brainstorming process used in identifying the best response recommendations based on the market system. The table below contains the long list of ideas and concepts considered by the market analysis team when thinking through the most appropriate responses for the milking cow market system.


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Emergency Market Mapping and Analysis Sri Lanka

Table 2.5- Response Options Framework

Response Option

Advantages

Disadvantages

Feasibility (High, low, medium and why?) and timing (short, medium, long-term)

Distribution of crossbreed cattle

Immediate impact For the short term Simple distribution programme

Limits integration with markets in target area and neighboring districts

Low! Expect of lack of stocks availability Short term

Government, Private and Nongovernmental Organizations

Upgrading cattle breeds

Unsusceptible breeds to diseases

Requires intensive cattle management practices,

High! Availability of AI Services Long term intervention

Government, Private and Nongovernmental Organizations

Limited supply of milking cow in the market, Small scale of intervention

Medium! Unavailability of large number of milking cow in local market,

Nongovernmental Organizations

High! Advocacy/Lobby with government to arrange redistribution of cattle to the farmers Short term

Government departments

Conditional cash grant distribution

Pre conditions could be met, i.e. shed for cows Practicing intensive cattle management

Redistribution of milking cows

No capital required

The cattle became stray animal and settled in military bases,

Strengthening LIBCOs [Livestock Breeders Cooperative Societies)

Collective action Legal recognition

Limits of infrastructure facilities

High! Emerging trend for institutionalization Long term

Actors

Government and Nongovernmental Organizations


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Emergency Market Mapping and Analysis Sri Lanka

Fodder cutting distribution

Linking with credit institution Training on improved cattle management practices Advocacy/ lobby with government for pasture land

Protection from stray cattle

Medium! Limited access to protected land Long term

Government, Private and Nongovernmental Organizations

Risk of over burden

Medium! Lack of credit institution Long term

Government, Private and Nongovernmental Organizations

Skill development Lateral spread of knowledge

Limited extension services

Government, Private and Nongovernmental Organizations

Increased fodder availability

Productive land contaminated with mines

Medium! Lack of human recourses in extension services Long term

Availability of fodder at household level

Pre conditions could be met i.e. shed for cows Practicing intensive cattle management

Medium! Non mechanized process of demining Long term

Nongovernmental Organizations


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Emergency Market Mapping and Analysis Sri Lanka


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Emergency Market Mapping and Analysis Sri Lanka

Chapter 3

3.1 Credit Services Market System Access to financial services is a key necessity for households seeking to re-start their livelihood activities following resettlement. Previous assessments in Kilinochchi and Mullaitivu have shown high numbers of households resorting to pawning jewellery and taking loans at very high interest rates from moneylenders in order to meet household-level cash-flow needs. This assessment seeks to build on the findings of previous assessments looking at household asset holdings and losses by mapping out the various sources of credit available in Kilinochchi and Mullaitivu districts and identifying the constraints households face in accessing these credit options. Specifically, this analysis seeks to answer three key analytical questions: a)

Who are providers of credit in the targeted area?

c)

What opportunities exist to open access to credit for the target population?

b)

What are the challenges faced by the target population to access credit? How best support can be provided to open access to credit for the target population?

3.2 Target population

The target population for this analysis is the conflict-affected and resettled population in Kilinochchi and Mullaitivu districts, Northern Province, Sri Lanka, totaling 300,000 people. The entire target population was displaced from their homes at the end of the conflict in 2009, seriously disrupting livelihood activities, food and income sources, and resulting in near total loss of financial and physical assets.

Although they have received varying degrees of support to restart income generation activities following resettlement, the target population still relies heavily on credit to re-start livelihoods and to meet their immediate needs. There are three main livelihood patterns in the target districts, mainly agriculture, fishing and wage labour. Households have different credit needs and opportunities according to the type of livelihood strategy pursued and credit schemes available. However, the majority of the population in Kilinochchi and Mullaitivu rely on credit not only to restart and expand livelihood activities, but also to rebuild homes, to meet food and household needs and to pay back other debts. Table 3.1 Approximate number of the population groups representing different livelihood systems.

Kilinochchi Mullaitivu

Farmers

Fishers

Livestock keepers

20,558

4,032

6,097

24,935

3,129

Source: Statistical Handbook of Kilinochchi and Mullaitivu, 2012

7,240

Women headed household 3,713

5,469


Donor Agencies

Private Banks

Key infrastructure, imputs and market-support services

Central Bank

State Banks

The market chain: market actors and their linkages

Donor Policies

Ministry of Economic Development

Donor fund RLF

Infrastructure Road, buildings

Samurdhi Authority

Bank Outreach and Mobile Services

Government and Semi-Government projects (Dept. Agrarian, Reawakening, Samurdhi)

UN/INGOs

Coop Unions (TCCSU/FCSU/ PRDCSC

CLCMS

Treasury

Audit

Credit information

Cooperative Act

Business Development Services

Credit Companies

NGOs

Pawning centres / Moneylenders

Friends and relatives

CBOs (WRDS, FO, VDO, Samurdhi)

Documents

Collateral

PAMP Group

Coop Societies (FCS, TCCS)

Social Service act

Market System Map - Credit Services

Figure 3.1-Credit Services Market System Map

Remittance

Pawning

S&C Group

Finance Act

Existing Actors

New Actors

Target groups

Colour Key

Recent Returnees

Early Returnees

Partial disruption

Major disruption

Critical issue

Symbol Key

44 Emergency Market Mapping and Analysis Sri Lanka


Emergency Market Mapping and Analysis Sri Lanka

45

3.3 The Credit Market System The credit market system is characterized by a series of government, private and donorsupported organizations operating at the national, district, and community level. These organizations are linked by credit flows and interest payments, and supported by a variety of laws and regulatory bodies as well as market inputs and services. The map here is a visual depiction of the credit market system in Kilinochchi and Mullaitivu districts.

The Market Chain – National-Level

 Central Bank9 : Although a regulatory body, the Central Bank’s Regional Development Department provides liquidity to commercial banks and offers them interest concessions in return for extending loans to rural households. These credit schemes, the New Comprehensive Rural Credit Scheme (NCRCS) and Agro Livestock Development Loan Scheme (ALDL), are implemented through state-run and private commercial banks. The Central Bank guarantees payment of 6% interest for the loans offered under these credit programmes. The banks participating in the scheme offer loans at 8% interest to households, and in total the bank offering the loan receive 14%. Additionally, the Central Bank also guarantees 60% of any nonperforming loans (willful default) 10. These credit programmes are targeting farmers in all parts of the country, so these are not specifically designed for the conflict-affected people. No specific flexibility is introduced in the conflict-affected areas.

9.

The Central Bank also promotes the Poverty Alleviation Microfinance Project (PAMP) whereby formal banking institutions adopt community-based and savings-based credit methodologies, partly to circumvent collateral barriers. The Central Bank received funding from JICA for this programme, in which 16 state owned as well as private financial institutions took part in the delivery of financial services to the rural people, with re-financing arrangements. Subsidized funds, at 4.5%, were made available to the banks to offer loans to the groups, at 12%. Therefore, unlike NCRCS, the refinancing scheme offers a wider margin to the implementing banks (margin up to 11% allowed). Although previous available in other districts, PAMP has only recently been introduced in Kilinochchi and Mullaitivu following resettlement11 .

There are other loan facilities, designed for people in the north and east, such as saubhagya, an investment loan, Northern Province Development Special Loan scheme “Awakening North”, and Provincial Development Loan Scheme. These special programmes are supported by the Central Bank with refinancing arrangements. The interest rates range from 9% to 12%, which is much lower than the market rate.

 State-managed commercial banks: Bank of Ceylon (BOC) and the Peoples Bank (PB) are the major state-run commercial banks supporting rural development through the NCRCS and ALDL guaranteed credit schemes from the Central Bank12. In the resettled areas credits are mostly extended through NCRCS13. Under NCRCS farmers are eligible to obtain loans for a range of

The information regarding the Central Bank’s rural credit operation was obtained from the Regional Development Department of the Central Bank, and from the Coordinator for the Poverty Alleviation Microfinance Project.

10. Source: PAMP coordinator at the Central Bank of Sri Lanka.

11. PAMP credit scheme was introduced in the conflict-affected areas as PAMP II; other districts in the country had already been covered by PAMP. Since JICA programme is being phased out, the Central Bank has planned to continue the PAMP scheme as PAMP Revolving Fund (PAMPRF), using the recoveries.

12. ALDL scheme is not very active in the resettled areas. The comments from the bank staff indicate that livestock investments received less priority among the resettled people, partly because livestock keeping in many households is only a secondary income earning activity. 13. Source: Manager, Bank of Ceylon, Kilinochchi.


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Emergency Market Mapping and Analysis Sri Lanka

cultivation activities; mostly obtained for rice cultivation. Those households that are currently linked to the banks include clients with a good previous credit history, those with proper land titles, recommended by the farmers’ organizations and agrarian department, and those who can have the guarantee of a government employee. A cross guarantee system is adopted where three farmers (mostly paddy farmers) sign sureties for each other. This scheme is beneficial to male paddy farmers who are members of Farmer Organizations and can demonstrate they are genuine farmers.  The BOC branch at Kilinochchi has distributed 1,900 NCRCS loans in the past two years after the resettlement. The loan size ranges from LKR 20,000 to LKR 100,000 at 8% interest. The loans are recovered just after the paddy harvest. LKR 25,000 is given for an acre of paddy land, and the farmers can receive up to LKR 250,000 per season.  BOC branch at Mankulam, Mullaitivu has distributed 1,500 loans of similar range under NCRCS.

 Private commercial banks: Private commercial banks have entered the resettled areas, mostly located in the town areas. There are four banks located along the A9 road - HNB, Commercial Bank, Sampath Bank and Sanasa Development Bank. These banks have similar collateral and guarantee requirements as the state banks, including good previous credit history, proper land titles, and those who can have the guarantee of a government employee.  HNB has resumed the NCRCS scheme and distributed 650 loans using a cross-guarantee system (guarantee by two other borrowers). HNB has also distributed around 200 loans under the ‘Gami Pubuduwa’ (village awakening) scheme using their own funds. The interest rate is 18%, higher than NCRCS rate. The loan size is up to LKR 200,000 and collateral is required for that scheme.  Sanasa Development Bank also has distributed nearly LKR 92 million worth of micro loans, through the refinancing scheme of the Central Bank, obtained through the ‘Re-awakening North’ scheme. The activities funded are small businesses, agriculture and livestock keeping.

 Credit Companies: Credit Companies are formal financial institutions offering specialized financial services like credit, insurance and leasing services for small and medium businesses. Entrepreneurs from the resettled population are accessing these services for agricultural vehicles and for other transport services. However, rates of seizure of these assets by the leasing companies, mainly due to non-payments, is increasing, indicating the challenges faced by entrepreneurs and businesses in benefiting from these financial services. These institutions also collect savings from those obtaining loans to minimize the risk of default. The local people generally consider these leasing services exploitative and high risk.

The Market Chain – District-Level

 Cooperative Federations: Cooperative Federations, such as the Thrift and Credit Cooperative Societies Union (TCCSU) and the Federation of Fisheries Cooperative Societies (FFCS), are districtlevel umbrella groups for many village-level cooperative societies within the same district. At Federation level they provide technical assistance and grant/loan funding arrangements to the local cooperative societies, and in turn receive savings and interest payments from the societies, which they then invest with banks, in business schemes, or in livelihood-based services available to all members. The local societies use the savings of members as well as funding from the Federations to provide loans to members. The Federations lost significant amounts of money as well as assets during the conflict and are struggling to provide even minimal funding and services to those local societies that have been re-organized following displacement and resettlement. Additionally, only about 50% of the local cooperative societies have been re-organized following displacement, hampering the Federations’ ability to collect savings, invest and extend credit.


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 Mullaitivu Thrift and Credit Cooperative Societies Union (TCCSU): This federation lost large amounts of money and other assets during the end of the conflict and displacement, and is only gradually regaining control of its other assets such as a tile factory, cashew estate and the two rural banks it operated. It was reported that it lost nearly LKR 80 million during the final stages of conflict, out of LKR 90 million they owned. The Federation has begun to re-capitalize its operations through LKR 11 million from well-wishers abroad that was provided as grants to widow members, and also received 7.5 million from CLCMS for credit purposes. However, the CLCMS facility did not have a grace period for repayment and as such was not suitable for farmers (note, CLCMS has since revised this policy on repayment periods to allow repayment after harvest). Additional constraints on the Federation operations include difficulty in re-starting primary societies due to security restrictions on visiting households, loss of its computerized database and credit tracking system, lack of field staff to monitor loans and motivate new societies, and lack of funds to recapitalize primary societies.  Federation of Fisheries Cooperative Societies (FCS)14: The Federation has resumed its credit functions at a much lower level than before displacement, but is still not able to meet the credit needs of all members to restart fishing livelihoods (a household needs nearly LKR 500,000 to re-start fishing activities). Since resettlement, FCS has received a subsidized loan at 5% interest rate through the Ministry of Fisheries and Bank of Ceylon and has used its own bank deposits to distribute as loans to roughly 300 members. However, between Mullaitivu and Kilinochchi there are several thousand members who have expressed a need for credit. Currently less than 25% of the fishing boats in operation prior to displacement are in use, mainly due to lack of funding to replace motors, buy fuel etc. With so few members earning income from fishing, FCS’s income base is very small, meaning it is very difficult to extend further loans to more fishermen to re-start their boats. With the loss of loan funds from the conflict, the lack of savings from the member societies and so few members earning income to pay off existing loans, the federation faces a challenge to meet the credit needs of its members. Their largest constraint is lack of capital to loan out to members to re-engage in fishing.

 Centre Livelihood Credit Management Services (CLCMS): CLCMS is a newly formed, intermediate level agency, which is coming under the Northern Provincial Authority. It receives finance mainly from the government (funds earned from the rehabilitation and development projects implemented in the north) as well as from the Central Bank through refinancing arrangements, and from the savings of the societies that it is managing. It supports the reorganization of village-level societies, such as Women’s Rural Development Societies (WRDS) and TCCS in order to financially support them. Presently it is working with 32 societies in Kilinochchi with 1,836 members (both TCCS and WRDS), and 28 societies with 1,465 members in Mullaitivu (both TCCS and WRDS). These societies are required to channel their savings directly to CLCMS, although they are supervised by the respective regulatory bodies. CLCMS is also mobilizing new groups based on the PAMP model (5-7 members).

Since resettlement, CLCMS has distributed around LKR 30 million in Kilinochchi and another LKR 28 million in Mullaitivu to households through local societies. The loan size ranges from LKR 20,000 to 25,000 in the first round, while savings is not required to receive loans. In the second cycle the returnees may receive loans up to LKR 50,000, and savings is required. These are mostly one-year loans. The interest rate is 10% charged on a reducing balance basis. Although the loans are given for livelihood purposes, there are instances of clients using the loan for multiple purposes such as renovation of house and consumption. CLCMS estimates that nearly 50% of the loans are used for consumption purposes.

14. The information regarding the credit facilities for fishers was mainly obtained from the personal interview with the officers of the fisheries cooperative societies in both districts of Mullaitivu and Kilinochchi.


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CLCMS faces several key challenges. First, reductions in government funding have limited increases in loan sizes to meet borrowers’ needs. However, there are plans to increase the loan size to LKR 150,000 for individuals with innovative business proposals. Secondly, most CLCMS staff are working on a contract basis, and the officers are taken from other government departments for a specific period. This limits the capacity of CLCMS in expanding its operation to the newly resettled areas.

 UN/INGOs/NGOs: Prior to displacement, many UN agencies and INGOs were supporting local NGOs and CBOs to run credit programmes. These organizations were also involved in mobilizing savings and credit groups (self help groups). For instance, CARE supported more than 10 groups with matching grants to be managed as a revolving fund. Oxfam also supported several savings and credit groups before the displacement. The end of the conflict and the subsequent displacement completely disrupted these groups, and in the post-conflict situation UN/INGO involvement in the credit market and in re-organizing self-help groups is minimal. Several UN agencies have provided financial support in grants and/or loans to the Federation of FCS to support fishermen but the level of support is small relative to need.

The Market Chain – Village-Level

 Community Based Organizations: The community-based organizations include the WRDS, Village Development Organizations (VDOs), Farmers Organizations (FOs) and PAMP groups. These CBOs serve as immediate sources of finance for the returnees.

 Women Rural Development Societies (WRDS): In the case of WRDS there are 81 societies in Kilinochchi. After the resettlement nearly LKR 36 million has been issued as loans for livelihood purposes.

 VDOs were formed after resettlement to engage communities in the rehabilitation and development programmes of the government, particularly the re-awakening projects of the Ministry or Economic Development, and are also responsible for credit functions as well. There are 62 VDOs comprising 1,748 small groups with 12,000 members, in Kilinochchi.  Poverty Alleviation Microfinance Project (PAMP) Societies: These societies are mobilized by the banking institutions with the support from the Central Bank. The banks, employing field officers, mobilize small groups (Grameen type groups) of 5-8 members and offer credit based on their performance in savings. Rural households with less than LKR 7,500 monthly gross income are considered for membership in the groups, and after 3 months of saving they become eligible for loans from the banks that mobilized them15. 1,536 small groups, with over 7,000 members, have been formed in Kilinochchi and Mullaitivu by the state banks (BOC and PB) and nearly 80% of the members are women in these groups. Roughly 2,000 members have been given loans at 12% interest and the total loans distributed by these banks amounts to LKR 120 million. The loan size ranges from LKR 20,000 to LKR 100,000, taken for diverse activities, primarily livelihood expansion16.

However, the PAMP groups face significant challenges in the resettlement context. Since savings is a condition for loans, people have been reluctant to join without the option for immediate credit. This trend is slowly changing as communities see the benefits of saving to access credit. However, many households find it difficult to continue to save while repaying the loan and effectively stop saving after obtaining loans and drop out of the groups. Additionally, those that do use loans to develop a stable income flow tend to leave

15. Source: Interview with PAMP coordinator, Central Bank, Colombo.

16. Information regarding the PAMP societies was obtained from the interviews with the field officers who are directly dealing the clients.


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the groups, likely in search of greater credit amounts. As a result of these group dropouts, the group guarantee system is threatened and it is challenging to find replacements that can consistently save. Lastly, bank field officers seeking to mobilize groups by visiting households and conducting mobilization activities face security related restrictions, which greatly inhibits monitoring and expansion of the PAMP groups.

ď ś Cooperative Primary Societies (TCCS, FCS)17: The primary societies of the cooperative federations are village-level cooperative groups that engage cooperative members in savings, provide loans and make available other livelihood-specific services for members. Displacement at the end of the conflict completely interrupted the functioning of the primary societies and all lost significant amounts of savings and other financial and physical assets. Since resettlement, only about 50% of both the TCCS and FCS primary societies have re-organized and are functioning at a vastly reduced level in terms of savings, resources, organizational capacity and service provision to members.

ďƒź TCCS: These are basically savings based societies that take time to evolve or reorganize. Before the displacement, there were 240 primary societies operated in both Kilinochchi and Mullaitivu districts. After the resettlement, at the time of the study, only 104 societies are functioning. These societies have received nearly LKR 20 million external funds for credit purposes and were able to support around 2,000 members at the grassroots level, mostly women. However, loans are not available to the majority of the members, nearly 4,000 members who have rejoined the societies, due to the lack of funds. Small loans are distributed to a limited number of people, primarily for farming and small business purposes. However, traditionally TCCS has not had any restrictions on the purpose of loans,and members acknowledge that funds are to some extent obtained for consumption purposes.

In order to support re-starting of primary societies, TCCS has relaxed certain rules, including reducing the period of savings required to be eligible for loans from six to three months and cutting in half the normal membership fee from LKR 100 to LKR 50. Additionally, the TCCS Federation reduced the interest rates on loans, such that the present interest rates vary between 6% and 12% - these rates were 18-24% before displacement.

ďƒź FCS: Like the TCCS primary societies, the FCS has been making efforts to reconstitute primary societies in fishing villages and to extend new loans to members. In Mullaitivu there were previously 24 societies with over 5,000 members, while currently only 12 societies are reorganized with 3,264 members. Similarly in Kilinochchi there are 14 societies functioning with 1,979 members. Additionally, the FCS reports that over 2,000 members have still yet to be resettled in their former communities, which represents nearly one-third of the membership capacity of the cooperative, meaning that these members will require a great deal of assistance once resettled later this year.

17.

FCS societies have so far provided small-scale loans to resettled people engaged in the fishing sector, including men and women, but only a small number of people have benefitted. Around 35 women members have received loans from the federation. These women are engaged in small-scale fish vending as well as dry fish making. Also 20 women members of a society are selected for loan support through an NGO, mainly for fish processing activities. Additionally 300 male members have received loans for fishing nets with loan sizes of around LKR 190,000 each.

The data with regard to the present situation of the TCCS societies and their level of operation was obtained from the discussion and interview with the members of the Societies gathered at the Federation office in Kilinochchi and Mullaitivu, and data obtained from their office documents during the field visits.


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 Savings and credit groups: These are self-help groups with the objective of improving savings and credit facilities of the members. Yuvashakthi Federation in Mullaitivu has 150 societies with 2,900 individual members. Similarly, in Kilinochchi Mahashakthi women federation has 110 societies with 2,100 individual members18. Around 3,500 women members have taken loans, ranging LKR 15,000 – 50,000. The interest rates vary between 10-12%. The total loan disbursement amounts to LKR14 million, and the recovery is reported between 90-100% in the individual societies. These groups were formed with the support of the local NGOs operated in north before the final conflict - as a result they seem to face certain difficulties in being recognized as legitimate savings and credit groups in the present environment. However, these groups remain an immediate source of funds for conflict-affected women.  Moneylenders / Pawning centres: District level data is not available on the presence or activities of moneylenders, but in the resettled areas visited there are at least some moneylenders operating. Interviewees indicate that there are fewer moneylenders operating compared to the pre-displacement period, reportedly because like everyone else in the communities the moneylenders were also heavily impacted by the displacement and lost significant assets. In several areas, respondents reported that there were no moneylenders in their areas. Where moneylenders are present, they charge varying interest rates (between 1% and 5%) charged on a daily basis.

Additionally, pawning remains an important service offered at interest rates ranging from 16% - 17.5%. These rates appear lower than some formal bank loans, however the borrowers also lose access to their collateral (often jewellery) until loans can be repaid and jewellery bought back. Of the total pawning 40% is obtained for domestic purposes (household occasions, education, health and settling loans). Households somehow buy back the gold jewellery, as the loan value is smaller than the market value of gold.

 Friends and relatives: Household interviews revealed that the strategy of borrowing from friends and relatives is not seen as a reliable option as their friends and relatives are also severely affected by conflict. The households interviewed had no relatives abroad and reported that few families in their communities had members abroad or received remittances. The low level of remittances reported appears to limit the opportunities to borrow from better-off family members or friends. However, respondents did report that it was common for those members of cooperative societies or Savings and Credit groups to share parts of the money they take out on loan with other family members. This redistributive aspect of the village-level credit groups suggests that expansion of these groups can have secondary benefits to the wider community, not just those who are members.

18. Source: Personal interview with office bearers of the federations in Kilinochchi and Mullaitivu.


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Table 3.2 -Sources and Conditions of Credit S.N. Sources 1

Type of facility

Formal Financial NCRCS, ALDL Institutions (State and Private banks, eg. BOC, PB, HNB and SDB)

PAMP and other Group loans (Banks such as Sanasa Dev. Bank have their own groups mobilized by their staff)

2

3

Conditions

Good previous credit history, certification from the farmer organizations/Agrarian services, and mutual guarantee by fellow farmers. In the case of individuals who are not members of FOs, guarantee by other, mostly salaried people, is required, in addition to collateral. Savings for a prescribed period, mutual guarantee by fellow group members. In PAMP the loan amount is not necessarily linked to the level of savings but in other cases loan amount is directly linked to the level of savings.

Investment loan (eg, Good credit history, business proposal and saubagya loan), and personal guarantee. other Northern Province Development Special Loan schemes.

Cooperatives: Thrift Loans for members for Be a member of the cooperative, savings for and credit cooperative various purposes a prescribed period, and guarantee by two societies (TCCS), and fellow members. In certain donor funded fisheries cooperative loan schemes savings requirements are not societies (FCS) emphasized in consideration of the situation after the conflict.

Community Organizations VDOs)

Based Loans for members for Be a member of the respective society, savings (WRDS, various purposes for a prescribed period and guarantee by two fellow members. In certain donor funded loan schemes savings requirements are not emphasized in consideration of the situation after the conflict.

The Market Chain – Credit Consumers

 Early returnees: Early returnees are those returned before July 2011, starting from the latter part of 2009. In the early-resettled areas the credit infrastructure has improved; banks and credit institutions have established their presence, federations of cooperative societies are functioning and a number of primary societies have been reorganized. Part of the membership in these societies has had access to small loans and grants have been made available to certain vulnerable groups like women headed households - for example, the LKR 34,000 grant offered to widows in the Oddusuddan area in Mullaitivu through the TCCS federation. Additionally, this population has had longer to develop cohesive relationships within their resettled communities and with government officials, relationships that can be used as guarantees on formal bank loans (particularly government officials).

 Recent returnees: For the purpose of this study we defined recent returnees as those returned from July 2011 onwards. Many of these families are still waiting to receive livelihood assistance,


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like the LKR 35,000 livelihood package that was made available to the early returnees. Credit infrastructure in the recently resettled areas is poor. Banks have still not extended their presence and the community level credit institutions are also not yet mobilized. Food rations either have already been phased out in many villages or will be very shortly. In the absence of credit facilities and the lack of capacity of friends and relatives people in these areas seek other ways of coping with their cash needs. For instance, a respondent at a newly resettled location reported that women in that area buy groceries at several shops on credit, for instance up to LKR 2,000 each, and settle when their husbands come back home after days of wage labour. Such incidents indicate that household-level cash flow is very thin, consumption needs are very high and that recently resettled households face greater challenges to access longer-term credit that can be used not only to meet food and immediate needs but to also restart income-earning activities19.

Market Infrastructure, Inputs and Support Services

 Bank Outreach and Mobile Services: Several banks have begun limited mobile banking services to reach communities slightly removed from the urban areas. Banks employ field workers who are expected to mobilize resettled households to link them with the financial institutions either in groups or individually to sell their financial services. The field workers are not necessarily an integral part of the organization and may not be well trained. While there is a benefit of extending various financial services to the deep rural areas, there are also problems of selling high-risk services to the poor without much awareness, and adverse selection by the returnees that make them vulnerable to indebtedness. Additionally, the extent of these services is limited to a small radius outside Kilinochchi.  Collateral: In order to access formal bank credit collateral is required, often in the form of land title or gold jewellery. However, the vast majority of returnees have been issued only a ‘permit’ to the land allowing them to live and cultivate a certain number of acres. This lack of title limits the ability of many households to access loans from formal institutions.  Documentation of ownership: During the rapid displacement at the end of the conflict many households abandoned their belongings and proof of ownership. As a result, ownership of a wide range of assets, including land, vehicles, homes etc. is nearly impossible to prove for many households, and thus these assets cannot be used as collateral. This also means that households face difficulties in claiming insurance and payments from the government for any assets lost during the conflict.

 Credit Information: Many households are unaware of the credit opportunities available from a variety of different actors, particularly those not physically present at the village level such as banks. Experiences of family and neighbours, and a perception of trust of different banks informs household-level decisions on which credit opportunities to pursue, rather than an understanding of the terms, conditions and complete knowledge of the different credit products available.

3.4 Key findings

The post-conflict credit market system in the northern areas seems to be changing gradually with more actors entering the market. Banking institutions and other financial institutions have moved in to the resettled areas, mainly locating themselves along the A9 road, to offer a range of financial

19. Source: Field data obtained from households in Kaiveli area in Mullaitivu, which is a recently resettled area.


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services and re-establish links with trusted clients. However, these services do not reach the majority of the resettled people, particularly the recent returnees. The two branches of BOC, situated along the A9, were able to offer only around 3,400 NCRCS loans during the past two seasons of paddy cultivation. Households reported that the loan requirements, particularly the need to demonstrate membership in a farmer organization or to prove land title, made these opportunities inaccessible, especially for recent returnees.

At the micro level, primary cooperative societies are struggling to resume functioning, particularly the TCCS societies and FCS Societies. The limited reorganization of societies and the limited funds available to recapitalize those societies results in limited livelihood activities of farming, fishing, small business and livestock, which have a direct impact on food security. It was also observed during discussions that people tend to cope by accessing credit from different available shops. The shop owners provide credit to families, up to a certain limit, and if this credit limit is reached and the family is unable to repay they move on and approach another shop. This could be one of the negative coping mechanisms that people have adopted to access credit at the micro level. Other impacts due to the market constraints include increased mortgaging of assets - land and gold jewellery. This reduces their ability to enhance productive activities. The returnees have to redeem their assets using the proceeds of their little investment leaving no capital for re-investment on livelihoods. The lack of access to credit thereby contributes to the poverty trap.

Key Constraints limiting access to credit for target groups:

 Limited access to formal credit opportunities: Access constraints for the target population are both physical and financial. Physically, many formal institutions do not operate in the areas of return and are difficult for households to reach. Outreach and mobile services are starting, but still at a very minimal level, mainly because reaching greater numbers of ‘less-bankable’ conflictaffected households increases the financial risks to the bank. Financially, access to formal credit is limited by collateral requirements and repayment terms20. The loss of documents proving ownership of assets and lack of title to land limits many households from seeking bank loans.

 Credit supply constraints: Because formal banking institutions are often inaccessible, households rely heavily on community-based organizations and cooperative societies as sources of credit. Where these groups have re-started (and 50% of them are still not functional following the conflict), they suffer from a lack of liquidity. Accumulating savings takes a long time and currently the savings levels are inadequate to promote their credit programmes at a meaningful level, leading to a rationing of credit and exclusion of needy members. Previously, the primary societies were able to access loans and grant funding from the district-level federations to expand their credit programmes, but the cooperative federations are facing similar constraints in terms of accessing additional funding and the capacity to monitor loans and repayment. Access to credit by the recent returnees is severely affected as many societies have not re-started in their areas or recent returnees have not obtained membership in the existing savings and credit societies.  Organizational Capacity constraints: This is particularly relevant in the case of community based credit institutions. These institutions play a vital role in providing immediate access to credit for a large number of people. Loss of funds, loss of experienced members and loss of previous records and physical assets pose severe challenge in the process of reorganization of

20. This is similar to the finding of a study conducted by Oxfam GB, in 2010, on Promoting Access to Financial Services in PostConflict Sri Lanka: A Policy Brief for Key Stakeholders. The study concluded that, while formal financial institutions quickly established their presence in the conflict-affected areas their outreach was low. The study was conducted in the conflict affected areas of north and east excluding Kilinochchi and Mullaitivu districts.


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these societies21. On the other hand, the returnees also face problems of re-establishing linkages with the formal financial institutions due to the lack of collaterals in the form of land permits, difficulty in finding people for personal guarantee or depletion or loss of gold jewellery.

ď ś Financial literacy constraints: While the returnees are aware of the credit schemes available with the banks, lack of knowledge on the procedure to obtain loans, documentation, and lack of information on collateral and interest rates, and inability to formulate viable business plans restrict their participation in the credit programmes offered by the formal financial institutions. On the other hand, lack of information about the market actors and their behaviour leads to purchasing high-risk loans and leasing services, exposing the returnees to further vulnerability of indebtedness.

ď ś Reduction in informal credit availability: Borrowing from family and friends is considered unreliable as all households in a community are facing similar challenges after resettlement. The presence of moneylenders appears to have decreased following resettlement, likely for the same reasons as inter-family lending has decreased. Where moneylenders and pawning is available, this can be difficult for households to access due to depletion of stocks of gold jewellery over the last three years of displacement.

Gender differences in accessing credit

Men and women do not access credit in the same manner and this analysis shows a fairly distinct difference between access to formal banking structures and those credit opportunities available at community level. In the case of grassroots level actors such as in PAMP and TCCS groups, it is reported that 80% of their members are women, and for the WRDS groups membership is open exclusively to women. Women appear to have a significant advantage over men in accessing these credit opportunities based on numbers of members, but this pattern is not the same in all communities. For instance, of the 270 loan beneficiaries of a PAMP location, 264 are females and 6 are males, but in another location in Kilinochchi, out of 612 beneficiaries, 265 are males, which is more than 40%. Despite the predominance of women in these groups it is also not clear to what extent the women members are indeed able to access similar or greater amounts of credit relative to the fewer male members. Additionally, it is worth noting that even if women do have great access to credit than men through these societies, these credit opportunities continue to be fairly limited due to the small number of groups re-organized since resettlement, organizational capacity constraints of the societies and the limited funding available for loans. There is traditionally male dominance in registered Farmer Organizations and Fisheries Cooperative Societies, where more men tend to have greater access to credit, but women are not necessarily excluded. Farmers Organizations are largely made up of paddy farmers, who are mainly male. In the case of Mullaitivu Fisheries Federation, while being a male dominated cooperative (95%) women are also benefiting from the loan programmes and are actually prioritized for some loan opportunities. In this case, women’s activities in terms of cleaning and marketing fish are integral to the benefit of the industry and the FCS seeks to support women as well as men. Both Farmers Organizations and the Fisheries Cooperative rely heavily on formal banking institutions and actively link their members, the majority of whom are male, with bank loans. Because of these links with supportive organizations such as FOs, men are also more likely to have access to formal bank loan opportunities. Land title, a key collateral requirement, is often in the

21. This is also in line with the finding of the previous study by Oxfam GB, in 2010, on Promoting Access to Financial Services in Post-Conflict Sri Lanka: A Policy Brief for Key Stakeholders. The CBOs faced capacity constraints in terms of managing the funds. Further, they also faced problems of misappropriation of funds by better-informed members. The study was conducted in the conflict affected areas of north and east excluding Kilinochchi and Mullaitivu districts.


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name of men and men can rely on their trade organizations for support in accessing loans. Women are not excluded from accessing bank loans, but access is considered more difficult. One respondent described how she was able to access formal loans by having a government official co-sign her loan.

Reasons for taking loans

The three major livelihood sectors for which loans are requested are farming, small business and livestock. Individual respondents revealed that they would use the loans for buying inputs for their chosen livelihood activity. Farming is the mostly cited reason for taking loans; understandably farming is practiced by a large section of the returnee population as they have access to lands. The next popular reason is operating small business. In this, trading activities, including mobile trading, are the most preferred reasons for taking out loans. Livestock keeping is the third most popular activity chosen by the loan recipients. Backyard poultry keeping, goats and cattle keeping are the specific activities cited in the application forms.

However, the field officers of PAMP and VDO projects revealed that households divert nearly 40% of the loan for other purposes; presently to finance certain housing needs. Using the credit substantially for consumption purposes is not generally observed, in line with the feedback from the field workers. Using the loans to settle previous loans or to buy vehicles on leasing arrangements is also observed in some cases. In the case of recent returnees, the expression of the need for credit was high. In a context where recent returnees are still struggling to re-start livelihood activities and where support for household food needs through distributions is tapering off, it is anticipated that a large portion of credit taken by recent returnees will likely be spent on consumption and housing needs. While the recent returnees would like to take loans, this might finally increase their burden in terms of repayment.

3.5 Recommendations

Based on the analysis presented in this paper, there are a series of programming and policy responses that can be taken to greatly increase the availability of credit to early returnees and those recently resettled. The large barriers currently facing these groups to access adequate financial resources to re-start and to expand their livelihoods and income opportunities limits their ability to meet their immediate food, housing and household needs and to economically progress into sustainable livelihoods The following actions are recommended to increase access to credit for the resettled population in Kilinochchi and Mullaitivu districts, and to speed economic recovery:

(i) Increase loan funds available to CBOs and cooperative societies: At the community-level, aid agencies could directly support the savings and credit societies in terms of reorganizing and injecting loan funds to these societies. This would help increase cash availability at the grassroots level, and there is potential for the vulnerable groups, especially women, to have access to credit. (ii) Improve organizational capacity of cooperative federations: At the district level there is a need to increase the capacity of federations - financial, physical as well as human capacity. This would have a beneficial impact on the functioning of the primary societies. In terms of livelihood development, Federations play a vital role in facilitating market access to the small producers. This is evident in the case of the Federation of Fishing Cooperative Societies.

(iii) Improve financial literacy of resettled communities: The study also suggests that lack of capacity in terms of financial literacy and business development knowledge hampers access to already available credit facilities. Therefore, intervention to improve financial literacy at the grassroots level, potentially through cooperative societies, will help maximize the available in the credit market. This would also help avoid adverse selection of credit facilities by unsuspecting rural clients22.


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(iv) Advocacy for changes in collateral requirements: Land title is a core requirement for formal bank loans, yet the majority of resettled people only have a land permit. For many loans banks require either proof of land ownership (for large loans) or several personal guarantees and an endorsement from a government official. Membership in a farmers’ organization, which is often dependent on land ownership or title, can serve as a guarantee for a loan. So those households who do not have full title to their land or who otherwise have difficulties being accepted into a farmers’ organization have difficulty accessing formal loans. Advocacy towards banks to accept the land permit as proof of means to a productive agricultural livelihood and means of repaying the loan would vastly expand credit opportunities for agricultural households. Similarly, advocacy targeting the government to transform land permits into land deeds would have a greater lasting beneficial impact on credit access and long-term livelihood sustainability of the population. (v) Advocacy for expansion of credit: At the institutional level, there is a need for advocacy for formal financial institutions to develop more flexible credit practices, similar to the approaches used in the PAMP groups. While commercial banks have adequate capital, their system of banking is not conducive for increasing access to credits by returnees. The strength of the formal banking sector, particularly the state banks, is their increasing presence in the resettled areas. The State needs to commit more resources for such flexible credit programmes through formal banking channels targeting the conflict-affected people, and facilitate the banks’ outreach operations to meet growing numbers of communities. Additionally, bank interaction with other actors, such as NGOs, farmers’ organizations and the Agrarian Services department through a multistakeholder forum will greatly expand the possibilities for new, flexible credit products through formal banking channels. (vi) Establish a District-level steering committee for credit services: Given the diversity of needs of the conflict affected people, credit related interventions need to adopt a broader approach to include stakeholders at different levels while maintaining the returnees at the centre of any intervention. A steering committee with the participation of all actors will facilitate more interventions that can build on the relative merits of the various programs and credit delivery mechanisms currently available. Such dialogue and cooperation can increase the transparency and coherence of credit services for the target population, improve livelihood opportunities and speed long-term recovery and growth.

22. In the case of PAMP groups the field officers reported that many women members became more knowledgeable about banking activities, and gained confidence in approaching banks by themselves without any support from other family members or relatives, as they were able to learn about banking, through the field officers.


Advantages

•Increased household income. •Livelihood diversification •Employment generation at local level.

Restore physical assets of the Federations. eg. Computerize credit operations, more transport facilities for field work etc.

•Increase the ability of Federation to resume functioning at increased capacity. •Facilitate more linkages with primary societies.

•Increased protection. •Increase confidence to engage in livelihood activities.

Grant for credit programmes to promote livelihoods for income generation; farming, fishing, livestock and small business.

Support for tailor made credit programmes targeting protection needs such as housing and sanitation facilities.

•Can serve the financial needs of specific vulnerable groups. •Increase protection. •Loans at affordable rates.

•Cash availability at the grassroots level will increase. •Members will obtain adequate money to invest in their livelihood choices. •Food production will increase

Grants to the CBOs dealing with specific population groups like conflict-widows or WRDS, to operate low cost credit programmes

Grants to the cooperative societies for the operation of Revolving Loan programmes at low interest rates.

Financial and logistical support for More credit societies will become the reorganization of primary credit functional. societies.

Response Option

Using credits for consumption needs

Using credits for consumption needs

Weak capacity of CBOs to manage credit programmes

Weak physical capacity to operate and expand the programmes

Disadvantages/ challenges

Table 3.3 Response Options Framework

High. Medium to long term.

High. Medium to long term

High. Short to medium term.

High. Short to medium terms.

High. Short to medium term intervention.

Feasibility (High, low, medium) and timing (short, medium, long-term)

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3.6 Response Options Framework


Support for the formation and functioning of the district level steering committee comprising the major stakeholders in the rural credit market.

Advocacy programmes to increase commitment of the institutional level stakeholders to promote development related credit facilities.

•Sharing of information and informed decision making with regard to credit interventions. •Avoid repetition of credit related development interventions.

•More community based banking operations of the formal banking system. •Increased social responsibility of the corporate sector

returnees less knowledgeable •More understanding about the about the intricacies of the financial various actors in the market. markets.

Commitment of the stakeholders to share information

Lack of interest of the formal sector to bank with the poor.

Moderate. Medium to long term.

Moderate. Medium to long term.

•Commitment from the target Moderate. Medium to long population for learning. term. •Existing literacy levels.

•More awareness on financial services and interest rates. •More confidence to deal with formal financial institutions •Increased access to investment loans.

Support financial literacy programmes, including business development services for youth and women through recognized educational institutions. Long period of isolation has made the returnees less knowledgeable about the intricacies of the financial markets.

Feasibility (High, low, medium) and timing (short, medium, long-term)

Disadvantages/ challenges

Advantages

Response Option

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Chapter 4

4.1 Masonry Labour Market System Wage labour is one of the primary livelihood strategies of the resettled households in Kilinochchi and Mullaitivu districts. Since these districts have been resettled following the conflict, food insecurity has reach very high levels and large proportions of the population do not engage in the production of food or have the income means to support their food needs. In addition to this, large scale efforts are underway to support resettled households to reconstruct their homes. Government and private sector actors are rebuilding roads, public facilities and businesses. This boom in reconstruction suggests that there will be employment opportunities in construction-related fields, such as masonry, and that promotion of these fields may be useful in helping households to meet their food and household needs. Even though women are involved in the construction industry, they are usually engaged in the lowest paying jobs and very rarely work as masons or masonry workers. This market assessment of the masonry labour market seeks to understand how well the current masonry market is functioning relative to the demand for labour, and whether there are opportunities to promote job creation in this sector. Specifically, this analysis seeks to answer three key analytical questions: •

What capacity does the mason market have to meet the demand of household construction in resettled areas?

•

What are the barriers/challenges for local masons to engage in the construction sector?

•

What interventions are most appropriate to increase supply of masons to meet the need?

4.2 Target population

The target population for this analysis is conflict-affected and resettled population in Kilinochchi and Mullaitivu districts, Northern Province, Sri Lanka, totaling 230,800 people. This paper analyses the masonry market system as an income market. Up to 25% of these households are estimated to rely on wage labour, of which masonry is a significant employment option. However, the masonry market system benefits all resettled households who require masonry services for housing construction or repairs, construction of public buildings and infrastructure, and who benefit from providing services to the masonry workers. As a result, the overall target group for this analysis is the entire resettled population within the target districts. However, within this large population there is a specific focus on unemployed labourers. There are 10,000-15,000 unemployed workers seeking consistent work in wage labour, particularly male and female youth up to age 35, the majority of whom have studied only up to or below the ordinary level qualifications. This analysis seeks to better understand what the opportunities are for engagement of youth in this market. Expanding opportunities for workers in the masonry sector, in line with the labour needs of the whole community, has the potential to speed reconstruction and recovery. The following table shows the seasonal patterns of the masonry market system relevant for the market system analysis below.


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Figure 4.1 Seasonal Calendar Masonry Market System Masonry SectorRelated Activity

J

Rainy Season

A

S

O

N

D

J

Flood/Less Demand

Festival

Less Work

Agriculture Harvesting Dry season

J

High Demand

4.3 The Market System

High Demand

High Demand

F

M

A

M

Less Work

High Demand

The market map below is a visual depiction of the masonry market system. This map illustrates the connections between the mason labourers, skilled masons and their employers in order to deliver housing and other construction projects. In addition, there are a series of institutions and policies which regulate the functioning of this market system as well as infrastructure, inputs and services which facilitate the connections between workers, contractors and households seeking permanent homes.

The Market Chain

 Masonry Workers: There are about 2,500 – 3,000 masonry workers23, primarily men, working in housing construction in the two districts, with about 30% of this total coming to these districts for work from other districts. Because many areas of Mullaitivu are only recently resettled the returnees have not yet entered the workforce full time, meaning the percentage of masonry labour from other districts is higher in Mullaitivu – 50% of the total compared to only 20% in Kilinochchi. There is an average ratio of 1.3 labourers to each mason for a house construction project. At the time of the study the Indian housing scheme and the government housing scheme are yet to start work and so the current market is limited to house repair by individuals and renovation of community infrastructure by the donors/government.

Working as a labourer is the main source of on-the-job training to become a mason – this needs a time commitment of about one year of regular working in the sector plus an interest and commitment to acquire masonry skills. The average wage for masonry labour is currently LKR 800 - 1,000 per day, but the established minimum wage for masonry labour is LKR 600 per day.

 Existing local masons: There are roughly 1,000 – 1,20024 local masons from the districts of Kilinochchi and Mullaitivu, working in housing construction within these two districts. These are men that become masons through experience by working first as masonry labourers. Local masons are paid a daily wage of LKR 1,200 - 1,500 with lunch. The level of experience among local masons is less compared to that of outside masons, mainly due to the fact that local masons

23. Under the housing assistance provided by agencies & government, it has estimated for 45 mason days and 60 masonry labour days for a 500 sq ft house (BOQ from UN Habitat). At present 4,382 new houses (source: district planning secretariat) are under construction - masons work on three houses simultaneously. Accordingly, 1,460 masons are working in construction of new houses (fully damaged houses). The number of masons working in repairing partly damaged houses and constructing transition shelters were calculated in a similar way. 24. Calculated based upon information provided by master masons and contractors.


Key infrastrueture, inputs and market support services:

Vocational Training centers

N=10,000-15,000

Unemployed youths

Local Masonry Labour

w-800-1000 + 1Meal N=1,750-2,100

Masonry Labour from other Districts

w-800-1000 + 3Meal N=750-900

The market chain:

Labour Department

The market environment: institutions, rules, norms and trends

Input Supplier Private hardware

w-1200-1500 (+ 3Meal) N=900-1,100

Masons from other Districts

w-1200-1500 (+ 1Meal) N=1,000-1,200

Existing Local Masons

ICTAD

N=4

Contractor

N=?

Informal Small Contractor (Head Mason)

Housing Donors (UNHABITAT SLRC, SDC, etc.)

Banks

Kachcheri

UDA

Non-Housing

End users of the service

Masonry service suppliers

Target groups

Colour Key

Private Construction

Common Infrastructure

Housing Schemes (Institutional)

Housing (Owner Driven)

House Hold level Construction

Housing Demand: 7,000 Masons, 9,000 Labourers

Partial disruption

Major disruption

Critical issue

Symbol Key

Transitional Shelters

Sand Transport Permit

Housing Program Implementers (IOM, Oxfam, DRC, SHA, etc)

NHDA

Local government Authority

Masonry Market System Map

Figure 4.2- Masonry Market System Map Emergency Market Mapping and Analysis Sri Lanka

61


62

Emergency Market Mapping and Analysis Sri Lanka

were displaced over the past several years and did not have opportunities to practice their trade. As a result, the quality of work of local masons is perceived to be lower than masons coming from outside the districts. Most of the local masons reported having sufficient work at the moment and only a few masons do not work as masons at present due to other priorities. The frequent absenteeism of local masons to work has resulted in local people and contractors giving preference for outside masons.

 Masons from outside the district: Between 900 – 1,100 masons from other districts work in housing construction in the two districts, most of them coming from the Eastern Province, with others coming from Jaffna and the southern districts. Almost all of them have become masons through experience by working as masonry workers. The masons from the other districts are paid a daily wage of LKR 1,200 - 1,500, the same as for local masons but they have to be provided with three meals plus accommodation. The level of experience of outside masons is higher compared to local masons as they have had the opportunity to work in this sector for a longer time. Further, masons from outside districts work continuously to complete the task and therefore the preference for outside masons is higher.  Informal small-scale contractors (head masons): There are a substantial number of experienced masons from within and outside the target districts who operate as independent, small-scale contractors. They are not formally licensed by the authorities. They take contracts from households that build owner-driven housing, and they hire other masons and masonry labourers to work with them. Further, they undertake construction of transitional shelters and construction of latrines etc. for institutional clients in Mullaitivu district.

 Contractors: There are about 20 registered local small contractor businesses engaged in construction of houses and other infrastructure works, and about 27 unregistered small contractor businesses. Each contractor hires teams of masons and has the capacity of building 20 -30 houses simultaneously. The majority of the masons and masonry labour hired by these contractors are from outside districts. During discussions with the target population, it was observed that additional costs are sometimes incurred by the house owners due to contractors, after getting paid, not turning up, forcing the house owners to hire other contractors and buy new materials. Since many of these contractors are coming from other districts it is difficult to trace them if they disappear. New measures are needed to regulate this industry within the Northern Province and manage the risks faced by beneficiaries of housing projects.

 Households: The total number of resettled families in Kilinochchi and Mullaitivu districts up to date is 68,602, of which 46,144 families need to build or repair their houses, and 5,585 households are in need of transitional shelters25. There are several types of programs to assist these households to rebuild or repair their homes, including temporary transitional shelter consisting of a concrete floor and temporary walls and roofs, owner-driven housing programs, as well as agency-built housing programmes to improve housing of resettled households. Delays in getting the housing grant installment from agencies and difficulties in getting required building materials; sand and timber, in time are among the key constrains face by the households in constructing their houses.

25. Source: 1st Quarter 2012 Progress report, District Annual Implementation Programme -2012, District Secretariat


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Emergency Market Mapping and Analysis Sri Lanka

Table 4.1 Housing Status in Kilinochchi and Mullaithivu

HH Fully damage

HH Partly damage

HH need transitional shelters

No of houses needed 52,045

13,383 14,012

No. of HH received assistance

Total gap

8,427

5,585

13,304 5,980

Source: District Annual Implementation Programme – 2012, District Secretariat

Market Infrastructure, Inputs and Services

38,741 7,403

 Aid Agencies: Many humanitarian and government agencies are engaged in housing and public works construction. Agencies including UN Habitat, SLRC and Swiss Development Corporation implement housing development projects. Altogether the humanitarian and government agencies are seeking to build or repair over 52,000 houses and transitional shelters in the target districts26.

 Vocational Training (VT) Providers: There are only a few VT providers that offer masonry courses. VTA and NAITA are the main providers with the capacity to produce 85 trainees per year. However, they report difficulty in recruiting participants and that most participants, rather than entering masonry work, seek further advanced technical training after receiving a certificate. A new VT training center, supported by GIZ, is being constructed in the target area. However it is unclear whether this centre will offer masonry courses.

 Housing loan providers: The National Housing Development Authority (NHDA) operates a housing loan scheme, especially to the government employees. This is a key element for increasing demand for masonry workers.

4.4 Key findings Gap Analysis

The analysis below shows that the current market system, at current levels of construction, is providing a sufficient number of masons to meet the need in the housing sector. However, the demand for masons and masonry workers for non-housing construction, including public buildings, infrastructure works and private construction is anticipated to increase considerably as ongoing works progress and planned projects come online. A quantitative analysis of the gap in masons and masonry workers for nonhousing construction was not possible; however the analysis shows that significant growth in masonry demand, well beyond the current supply of masons, is anticipated in the near term and to continue for many years to come.

Masonry Supply Gap – Housing Construction

A total of 68,602 families have been resettled in the two districts, and 52,545 houses of these families had been fully damaged. From this total 8,922 houses have been already reconstructed while another 4,382 houses are under construction. The number of houses still needing to be constructed for the resettled families is 38,741. In addition to the fully damaged houses 7,867 partly damaged houses also need to be repaired and 5,585 transitional shelters require basic masonry construction. 26. Source: 1st Quarter 2012 Progress report, District Annual Implementation Programme -2012, District Secretariat


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Emergency Market Mapping and Analysis Sri Lanka

There is evidence of indebtedness among the households, but it is not clear as to what causes this indebtedness, although housing needs could be one of them. In both donor-driven and owner-driven housing programmes there is a requirement for beneficiary contribution (Rs. 100,000) - defined in terms of provision of both unskilled labour and materials. Up-front payments, the difference between the government stipulated housing support (LKR 550,000) and the actual housing fund (LKR 650,000) for a 500 sq ft house, is not necessarily defined in financial terms. Renovation of houses is also taking place with donor support - between LKR 200,000 – 250,000 is provided for this. In this case there are cases of contractors exploiting the beneficiaries, particularly women beneficiaries mostly in remote areas. This leads to indebtedness as the beneficiaries have to borrow in order to complete the house.

With donor support and through government funding, affected families are provided with a housing grant of LKR 500,000 in five installments to build their houses in an owner-driven arrangement. The recommended size of the house is 500 square feet, which requires two masonwork months (45 days) and 60 masonry labour days. Based on these estimates, 7,000 masons are needed to complete all the conflict-related housing construction in one year. The present supply of masons is less than 30% of this total, meaning it would take a minimum of an additional 3.5 years to complete the number of planned houses with the current supply of masons working in the housing sector. It is also expected that the total number of houses under construction will take a year to complete, meaning the anticipated time to complete all planned housing works with the current supply of skilled masons is 3.5 – 4.5 years. The gap for masonry labour is similar to that of supply of skilled masons. On average, 1.3 masonry labourers are required for each mason, meaning the demand for masonry labour is over 9,000 people while the current supply is little less than 2,500 persons. With the current supply of masonry labourers it will take 3.5 – 4.5 years to complete the current and planned houses. Most government, donor and aid agency permanent housing schemes are operating on a fiveyear timeline to complete construction, meaning the current number of masons appears sufficient to meet the needs of these housing programs in the period of time required. Most households would prefer to complete construction more rapidly, which would require an increase in the number of masons and mason labourers available. Details of the housing construction needs and the present supply & demand for masons are given in the table below.

Table 4.2- Housing Construction Needs and Present Supply and Demand 27 Fully damaged Partly damaged houses houses

Transition shelters

Current supply of masons for on-going construction of houses/ transitional shelters No. under construction

No. of mason work month needed/unit

Average duration take to complete (months/unit)

Ave. no. of units each mason can construct simultaneously

4,382

1,613

6

3

2

3

825

0.75

0.125

4

8

1

27. Source: Information received from respective Divisional & District Secretariats during the EMMA study

Total


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Emergency Market Mapping and Analysis Sri Lanka

No. of masons currently engaged (= current supply working in housing)

1,461

403

103

No. of units to be constructed

38,741

7,867

5,585

1,967

Need for Masons to construct remaining houses/transitional shelters

No. of Masons required to complete within a year (demand)

Time needed to complete with current supply (years)

6,457

492

58

7,007 3.56

Masonry Supply Gap – Public Infrastructure Construction A large number of common/public infrastructure construction is both on-going and planned, creating significant additional demand for masons and masonry labourers (see table above). A useful quantitative analysis of the number of masons working on these projects and the mason and masonry labour demand from these construction works is not possible given the unspecified timeframes for completion, differing construction designs and vastly varying requirements for masonry workers. The analysis clearly shows that an overwhelming majority (close to 95%) of the planned public infrastructure construction works have not even started.

There is evidence, however, of a shortage of skilled labour and an oversupply of unskilled labour. House owners reported that there are only a handful of contractors are engaging in construction related work in the north. In many reported cases these contractors do not finish the work and/or the work is sub-standard, leaving the house owner in the position of having to find a new contractor. Despite this shortage, however, returnees are unable to find adequate work in the construction industry. It may be that contractors prefer not to hire all their required labour from the local areas, since the turnout is reported to be irregular, and prefer to bring their own workers only hiring locally when absolutely necessary. There are also no formal market players to link the workers to the contractors. This asymmetry of market information is also a factor that prevents returnees from benefiting from the industry. A further factor is that the provision of agricultural equipment to returnees has enabled them to resume farming on their own land, and so they divide their time between on-farm and off-farm activities – indicating that returnees do not always choose to seek labour work. It was found that previous interventions to create skilled labour in the area have not helped in solving the labour shortage problem. It was found that, having obtained the certificates, those trained often preferred to use it for various other purposes, such as migration and further studies. While training programmes have helped to improve educational standards, they have not directly helped in mitigating the problems faced by the construction industry. Besides, it should not be assumed that local people will keenly seek construction skills simply because there is demand for skilled labour. Traditionally there is a preference for formal education compared to vocational training, and salaried jobs compared to self-employment. This is evident from the findings that those previously trained had already opted for further studies. Interventions in this sector, therefore, must be carefully designed. Educational interventions, though important, may not immediately/directly solve the problem. Nevertheless, skill development of any kind will be very relevant in this post-conflict context. If there are too many dependent on


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Emergency Market Mapping and Analysis Sri Lanka

a daily wage, the solution to that need not necessarily be skill development. There is a need to think about promoting alternative livelihood or diversification of livelihood. Therefore, we need to separate demand and supply conditions as they require different interventions. Intervention in one will not necessarily solve the problem of the other. This large body of planned and on-going construction work indicates two key points relevant for the masonry market system: ďƒź

ďƒź

The number of masons engaged in non-housing construction is small relative to the demand from construction projects. Based on conversations with contractors, it is estimated that the number of masons working in non-housing construction is only about 20% of the total number of masons working in housing; meaning only 400 masons are currently working in the non-housing construction where over 600 projects are currently planned. Additionally, despite the large number of projects underway or planned (as shown for Kilinochchi in the table below), masons do not report having any trouble finding work. All masons consulted during this analysis reported that they are fully employed. These two factors suggest that there is a very limited number of masons available, if any, to meet the demand of the current and growing number of public works and infrastructure projects that will require their services. The relatively low proportion of these planned projects that have actually begun indicates that the demand for masons and masonry labourers will likely be very strong long into the future. Of the 670 planned construction projects, less than 5% of the money has been spent, meaning there is a large proportion to continue in the coming years. It is not possible to say how much of the planned construction will actually be implemented, but the list below represents only the planned projects in Kilinochchi and does not take into account public infrastructure needs in Mullaitivu or private construction works. Altogether, the demand for masons and masonry labour, while currently focused on housing construction, is likely to expand considerably as the public infrastructure works come online over the next several years.


Construction of new buildings, water tank, Field well and Peripheral fence

Water Supply & Sanitation, Immediate water supply facility and Tube Wells

Reconstruction of Buildings, Renovation of waste water treatment plant, Urgent repairs to concrete slab area of GH building, Construction of Buildings and Re-Construction of MO quarters

Dept. of Agriculture Research

Water Supply Board

Health

Construction of Vegetable and Fish Market & Shopping Complex, Reconstruction of Vadiyadi PS office Building, Public library Building, Reconstruction Of Ayurvedic Hospital, Reconstruction of Bus stand at Palai town Stage I, Renovation of Office Building

Local Government

Reconstruction of Kudamuruddy Bridge and road development work.

9

13

14

28

51

6

16

12

19

No of Projects

11,410.5

480.8

82.566

134.99

91.27

20,808.3

464.499

97.6

7.5

Total Allocation (Million-LKR)

28. Source: 1st Quarter 2012 Progress report, District annual Implementation Programme -2012, District Secretariat

Road Development Authority

Road Development Department Road Development Works

Repairs of Building, Renovation of CR Building

Maintenance of irrigation schemes, Public Building, SWE Scheme

Education

Irrigation

Dept. of Agrarian Development Building and Minor Irrigation Tank

Type of Activity/Work

Name of the Department 0

0

0

83.08

0

7.38

0.38

21.49

214.62

Expenditure (Million-LKR)

Table 4.3 Common Infrastructure Construction – Kilinochchi District28

100.00%

82.72%

100.00%

94.53%

99.58%

99.90%

53.80%

100.00%

100.00%

% To be finished %

Emergency Market Mapping and Analysis Sri Lanka

67


Reconstruction and Construction of Buildings

Total

Ministry Of Economic Renovation of Health Care Center & Development (Re-awakening Training Center, Renovation of Rural Project) Training Centre, Construction of dug well, Renovation of Preschool, common hall, Paddy Store, Coir Industry, Culvert & Road

Ministry Of Economic Rehabilitation of Roads and bridge Development (North East and Building Community Restoration Development and Project)

Ministry Of Economic Rehabilitation of tank Development (Emergency Northern Recovery Project)

Construction of Building, Repairing of Building

District Secretariat

Cooperative

Type of Activity/Work

Name of the Department

35,681.442

326.07

186

670

245.204

1,197.733

315.8

18.61

Total Allocation (Million-LKR)

59

188

18

51

No of Projects

1,196.14

6.89

149.77

711.53

0

1

Expenditure (Million-LKR)

96.65%

97.89%

38.92%

40.59%

100.00%

94.63%

% To be finished %

68 Emergency Market Mapping and Analysis Sri Lanka


Emergency Market Mapping and Analysis Sri Lanka

69

In addition to the projects listed in the table, there are additional construction projects planned and underway that require further masons and masonry labourers, again only in Kilinochchi: •

A large sports complex

70 schools

• • • • •

Proposed buildings for Agriculture and Engineering faculties Doctor’s quarters at hospitals Central Market Bus stand

Vocational Training complex currently being constructed with GIZ.

These public works projects do not take into account private-sector construction. Several large-scale private construction works are already underway, including two large garment factories, a Cargills processing centre and many other small private sector constructions that are on-going in the district.

Market Analysis

The market system for masonry labourers and skilled masons in the target districts appears to be fairly well integrated throughout the island. The relatively high demand for masons in the target districts has resulted in more masons from outside coming in to fill the demand. Currently just fewer than 40% of the masons and masonry labourers working in housing reconstruction in Kilinochchi and Mullaitivu districts are from outside the districts. While this means that the overall market system has responded well to the current demand, it also means that there are potential opportunities to increase local participation in the market system, particularly as unskilled masonry labourers. This is increasingly the case with the potential for a very large demand for masons coming online in the near future as public works and infrastructure projects progress. There are a series of constraints facing the market system that limit the engagement of local masons, masonry labour and unemployed workers from fully participating in the masonry market system in Kilinochchi and Mullaitivu districts. Additionally, there are a high number of female-headed households that cannot engage with the wellpaying masonry market system given the male-ownership of the market system.

Limited supply of masons and masonry labour: If housing schemes and owner-driven housing programmes are to be implemented over an extended, 4-5 year period, then the current supply of masons and masonry labourers in the labour market can provide sufficient workers to meet the demand for housing construction. However, if the programme requires more rapid implementation in a 1-2 year timeframe to assure the target population has an adequate home, then the supply of local masons is not sufficient to meet the construction demand. Outside of the housing construction, it appears that there is substantial, growing and long-term demand for masons and masonry labour and that this demand is currently unfilled. It is possible that this increased demand may be filled by more masons from outside the target district, but this demand for masons represents a key opportunity to train and to engage unemployed youth in the masonry market system to earn a consistent income.

Limited masonry skills-training opportunities: According to current practices, masonry skills are mainly obtained through experience by working as masonry labourers over a period of one year or more. Though there are some vocational training providers that offer skills training courses for the masonry sector, their capacity is very limited at present. Additionally, there is a fairly low interest in following the masonry VT courses, meaning training centres are facing difficulties in recruiting a sufficient number of students for their courses. The long duration of these courses


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Emergency Market Mapping and Analysis Sri Lanka

(up to one year, full-time) and location of the training centres (only in main cities) are the main reasons that interest in the courses is low. Students have difficulty in committing to a year of training away from their homes without the option of earning income. The VT providers lack the funding to provide participants with a stipend that would encourage more people to participate in the training programme and become certified to enter the workforce at a more skilled level. Additionally, although there are a substantial number of master masons and quite a number of contractors that have the capacity to train unemployed youths as masons through on the job training (OJT), they are reluctant to do so. The costs of such OJT are fairly high, including a legally required minimum wage of LKR 610 per day and the time invested in teaching and coaching the trainees. The productive working time dedicated to OJT would reduce the mason’s number of projects completed.

Lack of interest in masonry work: The lack of willingness and motivation among unemployed youths to enter into the masonry sector is another major constraint in increasing the supply of local skilled masons for the construction demand. There are about 10,000 – 15,000 unemployed youths in the target districts, but generally masonry work is limited to men and has the perception of only being suitable for less educated (having below O/L education qualifications) workers. As a result, only about 25% of these unemployed workers consider working in masonry, and of these workers the masonry sector competes with agriculture for their labour. Realistically, roughly 10-12% of the unemployed population is willing to work in the masonry market system and see it as suitable for them, even despite the relatively high wages and income earning potential.

Additionally, there is a general lack of awareness of the income earning potential in masonry, likely because the current level of development and construction work is relatively new for the target districts and many people are unsure of the potential for sustained incomes from the sector. In addition to this, people perceive masonry as being a lot of hard work as compared to agricultural labour, and requiring many years of working as a labourer before having the opportunity to become a skilled mason (unless your family is also engaged in masonry, in which case there are more opportunities to enter as a skilled mason). Without that level of experience as a masonry worker many don’t believe there are opportunities for newcomers to work in the sector. Additionally, many youth perceive masons as a less respectable profession, mainly because of the low education levels of those working in the sector.

Limitations on supply of building materials: Building materials, particularly sand and timber require a permit to be transported across districts. The permit process can take a long time and constrains the speed (and demand) for housing construction and masonry labour.

Housing grant delays: Many households and masons have reported delays in the delivery of housing grant installments to households. This slows down the construction process and reduces the demand for construction labour.

Limitations on engagement of local masons in construction: Because of displacement for several years, many of the masons from the target districts were not able to practice their trade during the last 3 or 4 years. They have less experience and there are fewer chief masons from the local area, and local masons are less likely to be hired by chief masons from outside the area. Additionally, local masons are themselves going through the resettlement process and as such have various additional requirements for their time to support their own household needs that the outside masons do not face.

Anticipated functioning of the market system

The current supply of masons and labourers is likely to be sufficient for housing construction, however this is dependent on a large numbers of workers from outside the district who cost more (due to the need to provide housing and food). If demand increases for masons, as anticipated due to the large planned number of public works and infrastructure projects, a greater number of masons will


Emergency Market Mapping and Analysis Sri Lanka

71

likely enter the target area. The influx of outside masons would increase as a result of the insufficient supply of local masons, and with the increasing demand, the price of masons may go up further putting extra pressure on households in need of getting their housing construction completed.

4.5 Recommendations

ď ś Support VT service providers to train unemployed youths in masonry: Support to VT service providers to train more unemployed youths in masonry can be considered as a direct response to address the issue of shortages of skilled masons as well as to create sustainable livelihoods and resolve the issue of youth unemployment among the recently resettled families. However, the present capacity of VT service providers is limited and at the same time the willingness of unemployed youths to follow masonry training courses is quite low due to number of reasons. To address these constraints, it is recommended to provide VT centres with required tools, equipment and materials required for training; to enhance their capacity to offer good quality training; to conduct community level awareness campaigns and to provide a monthly allowance or incentive to attract unemployed youths to the VT training program29. Implementation of this intervention would result increase of supply of local masons, assist resettled families to recover their livelihood as well as reduce the duration that would take to complete the housing requirement of the target population. The in-house training should be started in June/July or Oct/Nov, for making the trainees ready for their OJT (Recommendation #2) in the dry season. This intervention is feasible with the available capacity of VT providers and number of potential youths. Additionally, these VT programmes can encourage women recruits to pursue work opportunities in the masonry sector. Many of the participants in VT courses are already women; however they largely opt to continue their studies at higher levels rather than enter the technical fields. Considering the significant work opportunities and potential for consistent and high wages, masonry may be an attractive income opportunity for women particularly if men continue to shy away from the sector.

ď ś Revise VT training curriculum to include on-the-job training (OJT) with contractors: This response too can be considered as a direct response to address the issue of shortages of skilled masons as well as to create sustainable livelihoods and resolve the issue of youth unemployment. According to the normal practice, over 95% of the masons learn masonry by working as masonry labour continuously over one or two-year period. This duration can be reduce to six-months by providing them a proper training on theory and practical over about 20 days and then placing them on an organized OJT programme. There are over 47 small contractor businesses in the two districts and each of them contracts to construct 30 – 40 houses. These contractors showed their interest and willingness to offer OJT facilities to unemployed youths with short formal training if they were supported to pay 50% of the salary of these trainees over the training period. Accordingly, this response proposed to train 300 youths on a short training organized at cluster level and place them for OJT through an MoU with small contractors. Pay 50% of the salary for 6 months and coordinate with NAITA to certify the trainees at the end of OJT. Successful implementation of this response will result in an increase in the supply of local masons in short period of time, assist unemployed youths in resettled families to recover their livelihood as well as to speed up the completion of housing construction of the target population. This intervention is a highly feasible option with the present capacity of contractors and availability of unemployed youth potential to attract to the sector.

29. Secondary sources (Rapid assessment of opportunities for market oriented livelihood interventions, conducted by SEDCO, 2010) supported findings from key informant interviews that VT participation would increase dramatically if monthly support stipends or incentives were offered to defray the costs of attending.


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Emergency Market Mapping and Analysis Sri Lanka

Table 4.4 Recommendations Credit Services Market System Recommended Response

Support VT service providers to train more (200) unemployed male and female youth in masonry. • Conduct community level awareness

• Provide required tools and equipment to training providers

Effect on market system Key risks and and target group assumptions

Increase supply of local masons. Speed up the completion of housing construction. Reduce the social issues that have been happened due to outside masons.

Selection and recruitment of right trainees. Criteria need to develop.

Increase supply of local masons.

Selection and recruitment of right trainees. Criteria need to develop.

• Pay monthly allowance (for travelling etc.) to trainees

Design and implement OJT programme with contractors.

• Organize 15 – 20 days training course at cluster level • Place them for OJT through contractors with MoU • Pay 50% of the salary for 6 months

• Provide certification at end of OJT

Speed up the completion of housing construction. Reduce the social issues that have been happened due to outside masons. Create sustainable livelihood for unemployed youths.

Women may find it difficult to convince contractors on their capability of being masons.

Finding sufficient work after about three years. It’s assumed that ongoing intensive construction will remain for another 4 years period.

It’s assumed that contractors will motivate to provide genuine support in OJT. Finding sufficient work after about three years. It’s assumed that ongoing intensive construction will remain for another 4 years period.

Timing and feasibility

The training should be started in June/July or Oct/Nov. then The trainees will be ready for their OJT in the dry season. This intervention is feasible with the available capacity of VT providers and No. of potential youths.

The initial training should be started in July or February, February is better as it provide the opportunity to complete OJT fully in the dry season. This intervention is feasible with the available contractors and No. of potential youths.

4.6 Response Options Framework The response options framework is an EMMA tool to document the brainstorming process used in identifying the best response recommendations based on the market system. The table below contains the long list of ideas and concepts considered by the market analysis team when thinking through the most appropriate responses for the masonry market system.


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Emergency Market Mapping and Analysis Sri Lanka

Table 4.5 Response Options Framework Response activities / combinations

Key risks and assumptions

Timing issues

Likely effect on Indicators market system and target groups

Support VT service providers to train more (200) unemployed youths in masonry.

Selection and recruitment of right trainees. Criteria need to develop.

Should be started in June/July or Oct/Nov

Increase supply of local masons.

Finding sufficient • Conduct work after about community level awareness three years. It’s assumed that • Provide ongoing intensive required tools construction will and equipment remain for another to training 4 years period. providers • Pay monthly allowance (for travelling etc.) to trainees

Design and implement OJT programme with contractors.

• Organize 15 – 20 days training course at cluster level (for 300 trainees) • Place them for OJT through contractors with MoU

• Pay 50% of the salary for 6 months • Coordinate for RPL at the end of OJT

Selection and recruitment of right trainees. Criteria need to develop.

It’s assumed that contractors will motivate to provide genuine support in OJT.

Finding sufficient work after about three years. It’s assumed that ongoing intensive construction will remain for another 4 years period.

Speed up the completion of housing construction.

# of youth trained Percentage of trained youths are in masonry profession

Reduce the social issues that have been happened due to outside masons.

Create sustainable livelihood for unemployed youths. should be started Increase supply of in July or February, local masons. February is better Speed up the completion of housing construction. Reduce the social issues that have been happened due to outside masons.

# of youths completed the 20day training # youths completed OJT # of students certified in RPL

# of youths continue in masonry Create sustainable profession livelihood for unemployed youths.


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Emergency Market Mapping and Analysis Sri Lanka

Response activities / combinations

Key risks and assumptions

Timing issues

Support present VT providers to setup branches / start masonry courses in high potential locations

Feasibility of running masonry courses in long run.

It may need at Increased supply least six months to of masons. start courses Sustainable livelihood for unemployed youths.

# of masonry courses conducted

Promote more VT providers to offer masonry training courses

Capacity of VT providers to offer more masonry courses.

It may need at Increased supply least six months to of masons. start courses Sustainable livelihood for unemployed youths.

# of masonry courses conducted

Train masonry labourers already in the sector to become qualified masons in shorter period. (Short theory & practical training on weekends over three months period while working as masonry labour)

Willingness of Would take 4-6 existing masonry months labourers to follow training course

Increased supply of skilled masons.

# of masonry labour trained

Willingness of small contractors to attend training.

Increased capacity of local small contractors to take more contracts, recruit more masons and complete more houses

# of contractors trained

• Provide technical and financial assistance to VT providers

Build the technical and management capacity of local small contractors and to train their workers

Sufficient number of students would be able to attract through awareness and motivation campaigns.

Sufficient number of students would be able to attract through awareness and motivation campaigns.

Likely effect on Indicators market system and target groups

It would be able to attract masonry labourers to follow short training on weekends.

Would be able to attract small contractors for short training on weekends

Would take at about 3 -4 months

# of student trained

# of student trained # of students find employment as masons

# of masonry labour promoted as skilled masons within 6 months

# of masons trained by contractors


Emergency Market Mapping and Analysis Sri Lanka

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Chapter 5

5.1 Groundnut Market System Groundnut is a field crop cultivated in both Kilinochchi and Mullaitivu districts in the Northern Province of Sri Lanka. It is grown year round and marketed both within the districts as well as sold into national value chains by middlemen and wholesalers. Given the widespread consumption of groundnut across the island, it has high potential as a cash crop and is traditionally grown by both women and men, making it an appropriate and potentially important alternative income source for women-headed households. Additionally, groundnut production is not input-intensive and can be quite profitable, even at small scale, as well as being a good source of income for widows and people with disabilities as a homebased processing industry.

This assessment focused on groundnut as an income source for producers. In particular, the analysis focuses on the capacity of the groundnut market system to continue providing sustainable income sources for the producers in Kilinochchi and Mullaitivu districts, even if production were to increase dramatically. Specifically, this assessment attempts to answer two key analytical questions around the market capacity of the groundnut market system: 1. What are the constraints for the target population to reach their groundnut production potential? How can these constraints be overcome?

2. Will the market provide sufficient demand if the target population does reach the groundnut production potential?

5.2 Target population

The target population for this analysis is the conflict-affected and resettled population in Kilinochchi and Mullaitivu districts, Northern Province, Sri Lanka, totaling 230,800 people. This paper analyzes the groundnut market system as an income market and as such focuses specifically on those small-scale farmers who can benefit from increased groundnut income. This population includes both those farmers currently cultivating groundnut as well as those farmers in the target area with the potentiality for groundnut cultivation (basically soil conditions and the irrigation sources). In total, 42,076 resettled households cultivating less than two acres of land in Kilinochchi and Mullaitivu are estimated to fit this target population30, including 6,084 widows/ women headed households in Mullaitivu and 3,012 in Kilinochchi.

30. Source: Statistics from the Offices of Deputy Director of Agricultural Extension of Kilinochchi, Mullaitivu Districts, March 2012


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Figure 5.1 Seasonal Calendar for Groundnut in Kilinochchi &Mullaitivu Activity, Food or Income Source (Factors)

J

F

M

A

M

J

J

A

S

O

N

D

PLANTING

HARVESTING

LABOUR EMPLOYMENT

INCOME (from groundnut sales) MONSOON

DRY SEASON

LAND PREPARATION

High Level

High level

FESTIVAL SEASON

IRRIGATION – Tank Water

IRRIGATION – Well Water, Pump

5.3 The Groundnut Market System The map below is a visual representation of the groundnut market system according to the current situation in the two target districts. The map depicts the value chain of groundnut production and sale as well as those regulatory institutions and laws that influence the market and infrastructure and support services that facilitate the flow of groundnut along the chain. Trade volumes and prices are relevant for the previous year according to the information collected during the field assessment. The map also includes the current constraints faced by groundnut farmers in increasing the area under cultivation and thereby their incomes. A baseline market map was not used in this analysis due to the long-term post-conflict and recovery situation, and instead the analysis focuses on the present functioning of the market system and how it is anticipated to function in the future.


Export Development Roard

MICRO FIANCE

AGRICULTURAL TOOLS AND MACHINERY

MOBILE VENDERS Rs. 400/=. 3-5MT

RETAIL SHOPS Rs. 400/kg. 5-10MT

LOCAL VENDERS Rs. 150/kg. 3-5MT

WHOLESALERS Rs. 140/kg. 60-70 MT

Ministry of Agriculture & Livestock

FERTILIZER SUPPLIERS

OUTSIDE PROCESSORS 12-14MT

TRANSPORT & ROADS

Processors 2

Traders 1

Target Groups

Colour Key

BANKS

OUTSIDE CONSUMERS

RETAILERS PROCESSED ITEMS

LOCAL CONSUMERS

Ministry of Irrigation

MARKET INFORAMTION

Presidential Task Force

LOCAL PROCESSORS 6-7MT

STORAGE

Ministry of Economic Development

INGO’s/NGO’s FARMER ORGANIZATIONS

Subsidy Policies

The following description of market system actors outlines the linkages between the different levels of the market visual in the map above:

PRIVATE SEED SUPPLIERS

AGRICULTURE RESEARCH DIVISION SEED SUPPLIERS

MIDDLEMEN Rs. 110-120/kg

Key infrastructure, inputs and market-support services

PRODUCT DIVERSIFICATION

AGRERIAN DEPTEXTENSION SERVICE

IMPORTS 4005MT

LARGE SCALE PRODUCER 20-30 MT Rs. 120/kg

SMALL SCALE PRODUCERS 50-60 MT Rs. 110/kg

Import/Export Ministry

The market environment: institutions, rules, norms and trends

Present situation of the Ground Nut Critical Market System in Kilinochchi & Mullaitivu

Figure 5.2 Ground Nut Market System Map Emergency Market Mapping and Analysis Sri Lanka

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Emergency Market Mapping and Analysis Sri Lanka

Table 5.1 Ground Nut Market System Actors Market Actor

No. of actors Volumes traded between actors (MT)

Prices Remarks (Rupees per kg)

• Producer: Groundnut producers include both smallholder farmers as well as large-scale commercial producers. In total, smallholder farmers produce almost double the groundnut of the commercial farmers, but there is a much greater number of smallholder farmers.

Mullaitivu 6,544 31

Production: 86MT

110-120

In total smallholder farmers almost produce double of the groundnut of the commercial farmer and there are many more smallholder farmer.

10-20

45MT

110-120

Middlemen reach out to producers and purchase directly from the farmer, after harvest. Ensures a quick sale for farmers but at a lower price.

8MT

400

The average sales volume is 10KG per day. They sell at Rs 400 per kg much higher than local vendors due to value addition (boiling, frying and roasting and preparation as ready to eat snacks) as well as the convenience of the vendor coming to the consumer.

• Middleman: Middlemen purchase directly from the farmers and sell to the wholesalers or to the processers. Middlemen travel to the producers’ fields and purchase groundnut directly after harvest, ensuring producers have a quick sale, but also at a lower price.

Kilinochchi 6,23310

40-50 • Local/ Mobile vendors: These market actors sell raw, boiled, dried, fried or roasted groundnut in small quantities to the direct consumers as snacks. They differ from retailers in that they operate primarily at the village level and do not have fixed locations. The average sales volume is below 10 kg per day. They sell at Rs. 400 /kg, much higher than local venders, because of their value-addition in terms of boiling, frying, roasting, and preparation as readyto-eat snacks as well as the convenience of the vender coming to the consumer.

Traded: Production 81MT

31. Numbers of producers are according to the Mullaitivu & Kilinochchi Agrarian Extension Services Division.


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Emergency Market Mapping and Analysis Sri Lanka

Market Actor

No. of actors Volumes traded between actors (MT)

Prices Remarks (Rupees per kg)

160-175 • Retail shops: Retailers buy the groundnut locally from the farmers, middlemen, or from wholesalers and sell to their consumers. They sell at a higher quantity than the local/mobile vendors, roughly 10-100kg per day. Some have difficulty accessing the producers from whom they source their supply. Despite a decrease in volume, they continue to purchase at the same price of Rs. 110 /kg. They sell at Rs. 400 /kg to account for their investment in cooking and groundnut for immediate consumption.

8MT

400

65MT

140-150

• Processers: Buy from wholesalers or retailers and process into confectionary or mixture bites and sell to the retailers locally. De-shelled seeds have increased prices in the market than the pods. Still the de-shelled seeds processors are not in the two districts (seeds price Rs. 350/kg)

6.8MT

10-80

• Wholesale traders: Buy in bulk 12 from the middlemen or from the farmers and sell in bulk to the retailers and processors or they transport to outside the district. Sales volumes are more than 500 kg per day.

12 Registered under the DS officesmall scale industries

25-30 unregistered

Some shopkeepers have difficulty accessing producers from whom they source their groundnut. Despite a decrease in volume, they continue to purchase at the same price Rs 110/ Kg to account for their investment in cooking and groundnut for immediate consumption Sales volumes are more than 500 kg/ day

De-shelled seeds have higher prices in the market than the pods. Still the de-shelled seeds processors are not in these two districts (Seeds price Rs 350/kg)

5.4 Key findings Gap Analysis

There are 51,112 farmers in the two districts - out of this there are 12,777 groundnut farmers who altogether produced 86MT of groundnut last year (including production from large-scale farmers). According to the Agricultural Extensions Services Division there are 42,076 households that have appropriate conditions (appropriate soil and irrigation facilities) to produce groundnut and a total potential land area of 20,865 ha including production on fallow paddy land during the non-paddy seasons. Provided that the maximum land area is cultivated by all potential groundnut producers using standard


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Emergency Market Mapping and Analysis Sri Lanka

production practices, the total production of 11,280 MT per year can be expected32. This total production potential of Kilinochchi and Mullaitivu is useful to compare to the national-level need, to help determine whether the market system can absorb a large-scale increase in production and whether it is feasible to promote groundnut production as a viable income-earning strategy for resettled households.

Table 5.2 Target Group Ground Nut Producers and Gaps

Target group

Total number of farmers

Groundnut producers

42,076

(small scale farmers below 2 acres lands)

Amount produced last year with only one season 86MT

Maximum production potential per year with 2 seasons 11,280 MT

Production gap

What is needed to increase production to meet potential?

11,194 MT

• Quality seed, fertilizer

& fencing with technical support

• Farmer organization strengthening

• Stronger leadership of farmers organizations

• Equipment - seeders, weeders, ploughs, diggers & grading equipment

Additionally, analysis of Sri Lanka national production trends show that overall, the country produced 16,800MT of groundnut 2011 and that this represented only 34% of the total estimated demand for that year33. The total country estimated demand for groundnut is 50,000MT34, meaning that even if the Kilinochchi and Mullaitivu districts reach the estimation of full production potential (11,280MT) this would still be well below the national demand when coupled with production from the rest of the country. Therefore an increase in production of groundnut in the target districts can be adequately absorbed at all levels of the market system. Groundnut production appears to have relatively promising potential as a cash crop given the large demand for groundnut and the production potential in the target districts.

Market Analysis

As displayed on the map the following critical issues can be observed:

Weak extension services: There is no proper, regular extension service at farm level. Government extension services are facing constraints to provide farm services - the Agrarian Services Department does not have enough staff to cover the field area (Mullaitivu extension office has only 9 Agriculture Inspectors with vacancies for 18 staff). The road access and the transportation services are not adequate to provide a quality service to the farmers. Therefore, small producers lack information on improved production techniques and tools, appropriate use of inputs and other extension-related information that could improve yields and incomes from groundnut. A large portion of the smallholder farmers are not aware of the profitability and demand for groundnut and as a result rely on other crops 32. Source: Mullaitivu, Kilinochchi coverage of livelihood assistance report-2012 and Mullaitivu & Kilinochchi Agrarian Extension services Division 2012

33. Source: Agric. Statistics hand book by the Department of Agriculture-Gannoruwa-2011

34. Source: National campaign to motivate domestic food production –Mahinda Chinthana 2010 Program Proposal


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which may not provide as much income to them. It is noted that the average groundnut yields in the target districts are half the average in other districts.

These two districts were marginalized during the past 30 years of conflict period and there was a huge information gap when compared with the other districts in the country. Average groundnut yields in the target districts are half the average in other districts, despite the favourable agro-ecological conditions.

Low availability of quality inputs: v

v

v

v

Seeds: There are very few facilities dedicated to groundnut seed production (government seeds production programme is only supplying one-third of the demand) and seeds available on the market are often of low quality and mixed varieties. In the government programme there are only 70 registered seed-producing farmers in the area with 61hectares of land. There are only 2-4 staff members to work with the seed certification service including farm visits. This certified seed production is not enough and so the farmers purchase seeds from the neighbouring villages or from the market without proper grading. There are six groundnut varieties recommended by the research division of the Agrarian Services Department but only two of the recommended varieties, Tissa and Indi (which are smaller and lower yielding) are available in Kilinochchi and Mullaitivu. Recommended quantity is 40kg seeds per acre but farmers have to plant 75kg per acre with the poor quality seeds. This poor seed situation contributed to low yields and high costs of production. Child Fund and the FAO distributed groundnut seeds to farmers but most of the farmers have not kept the yield for seed purposes due to the irregular irrigation facilities during subsequent seasons (seeds can be stored only for a month in the farmer field conditions). Irrigation: There are wide differences in irrigation infrastructure from one area to another, limiting the supply of water for groundnut production during certain periods of the year. Groundnut is a crop cultivated in the highlands under rain-fed conditions during maha season and in paddy lands under irrigation during yala season. It can, however, be grown three times a year with the use of continuous irrigation facilities. In Mullaitivu district there were previously 41 lift irrigation pumps available – but now there are only nine available, according to the Deputy Director of Agriculture. CARE, Save the Children, UNDP, Oxfam GB and World Vision have all distributed kerosene water pumps to the farmers, but the cost of production is high due to the recently increased kerosene prices.

Low farmer working capital: Due to the long periods of displacement and the recent resettlement, many farmers have lost their asset base and lack both capital to invest in groundnut production as well as the purchasing power to buy sufficient or higher-quality inputs. Since farmers are economically week to purchase fertilizer (TSP and Gypsum), fencing or the required machinery (seeders, weeders and diggers) the yield and the land productivity is low. Fencing is a major requirement in some areas and some farmers have potential lands but they can only cultivate if protected by fencing, even if they have irrigation. Weak farmer organizations: Farmer organizations are beginning to be reconstituted after resettlement but remain weak in many locations. Most of the farmer organizations are focused on paddy cultivation and pay little attention to the organization of other cash crops. Without organization, farmers do not apply any distinct timeframes for planting and harvesting meaning that there are no collective efforts for pooling groundnuts at harvest time for leverage in dealing with middlemen. Therefore, farmers have low negotiating power with the middlemen. Additionally, these organizations cover a variety of crops and different types of farmers, not specifically groundnut, and do not have the resources to organize across a variety of crops. As a result, farmer organizations are weak in terms of organizing groundnut farmers to maximize resources, provide collective bargaining power


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Emergency Market Mapping and Analysis Sri Lanka

v

v

v

v

with middlemen or supporting farmers to access to credit and farm services. There are 107 farmer organizations in Kilinochchi and 124 in Mullaitivu and the majority of them are not strong enough to request government extension services or other development programmes by the NGOs.

Lack of groundnut grading equipment at community level: Currently, middlemen purchase groundnut from producers in the field. Without grading equipment to verify the high quality of produce, middlemen can set prices lower than the market value of the produce.

Formal banking facilities: Banks and credit facilities are not yet available for groundnut farmers in Mullaitivu District, but in Kilinochchi the banks are well-established and several are offering farmers low-interest rate loans, government subsidized loans or group loans. Most of the farmers are not accessing formal banks due to the low exposure, distance and collateral problems. Few farmers are accessing local pawning centres and moneylenders for credit purposes.

Roads and transportation: Because of the poor quality roads following the conflict, farmers have a difficult time transporting produce to wholesalers. Instead they sell to middlemen who come to their remote farms. Transportation infrastructure is a partial blockage in the market link between wholesalers and processors. Access to land: Approximately 30% of agricultural land in both districts remains inaccessible because it is either under the control of the military or has not yet been demined35. There are also several thousand people who have not yet been resettled and who represent a proportion of the potential groundnut farmers. This group has not yet been granted access to land for cultivation.

Anticipated functioning of the market system in the future

Given the current levels of national production compared to the overall demand, groundnut has the potential to be a significant cash crop for resettled households for many years. Kilinochchi and Mullaitivu have potential to significantly increase their groundnut production from the currently very low level without over-supplying the market and risking a decrease in the value of groundnuts. This analysis shows that the market has no constraints in absorbing these increased levels of production. Prices paid to producers are likely to remain stable, even with large increases in production, as the local production is well within the country demand.

Moreover, increases in production would foster demand for increased processing industries, and more value additions and diversifications could be expected. Market trader capacities are expected to increase with increased income and employment creation in processing and grading. The groundnut market could also expand existing opportunities for women headed households, unemployed youth and people with special needs to both engage in groundnut production as well as the processing and retail industries.

5.5 Recommendations

Based on the market capacity and the functioning of the market system, this analysis has identified several opportunities for programmes and policies to improve the income opportunities for small-scale farmers from groundnut production. Both direct and indirect interventions are necessary in the groundnut market system. The overall functionality of the system is currently disrupted to such a scale as to require support at multiple levels. Actions to support farmer organizations, extension services and the input suppliers should be strongly considered in order to benefit the small-scale producers. Recommendations are outlined in the Recommendations Framework below (table 5.3), and described in more detail following the table.

35. Information from the Kilinochchi, Mullaitivu-Assistant Director-Planning Division 2012 March


Increased groundnut production and income for target population, and technical knowledge to continue production

Raise awareness of groundnut production as a profitable activity by supporting farmer organizations with technical extension services.

Fill the gap of quality seed in the market system; increase the yield of the jumbo variety of groundnuts and reduce imports

Support alternative irrigation Minor irrigation system repairs can improve systems or support for cultivation to 3 seasons per year and increase renovation or rehabilitation of production the existing system to increase groundnut yields

Provision of good quality seeds as in-kind grants to the farmers (Walawe variety)

Increase availability of good quality seeds, and Ensure support from increased groundnut yields the Government seed certification and registration of seed producing farmers

Support expansion of the number of seed production farmers and inspectors, and include them in the seed certification services

Improved land productivity

Need to work with the support from the irrigation department

Need to ensure support from the Government agrarian services

- Continuous monitoring by agro specialists

- Maximum support from the Government agrarian services & other BDS partners

Identified gaps will be fulfilled in the agrarian services to improve support to farmers, pest control and cultivation practices. Leader farmers & partner knowledge and capacity to deliver services will be increased and farmers will have increase yield and income

- FO will be strengthened enough

- Not enough seed production

- Low access to irrigation

Key risks and assumptions

Improve and expand current NGO-based extension services to complement government services and strengthen farmer organizations and farmer leadership.

Improved productivity and minimized cost of cultivation

Effect on market system and target group

Recommended Response

Table 5.3 Recommendations for Groundnut Market System

Identification can be rapid, but implementation may be long-term

Medium

Should be timed to meet maha season needs

High feasibility

Long-term intervention, but should be started immediately

Medium feasibility

Immediate implementation to support producers

Medium feasibility

Immediate implementation to support producers and increase income

High feasibility

Timing and feasibility

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Promote private sector investments for groundnut production and processing

Increased performance of organizations to support small-holders; increased access for producers to inputs, credit, and bargaining power with middlemen; high sustainability

Strengthen farmer organizations through machines, leadership training, re-establishment of revolving credit funds, equipment, and introduction of social audits to improve FO governance practices

Increase value-addition of groundnut through processing; increase demand for raw groundnut from producers; potential for additional employment at processing level for landless people, widows, unemployed youth

Community empowerment & more sustainable

Effect on market system and target group

Recommended Response

- Need improvement in the infrastructure facilities to attract private investors.

- Need credit facilities for private sector actors.

Need commitment from the Farmers organizations, and support from the FO regulating agencies.

Key risks and assumptions

Long-term approach to improving employment and income from groundnut

Medium feasibility

Can be implemented immediately

Highly feasible

Timing and feasibility

84 Emergency Market Mapping and Analysis Sri Lanka


Emergency Market Mapping and Analysis Sri Lanka

v

v

v

v

v

v

v

85

Promote groundnut farming by increasing extension services for farmer organizations: This indirect intervention will support farmer organizations, existing groundnut farmers and potential groundnut farmers. Providing extension services to farmer organizations will raise the profile of groundnut within the organizations, promote farmers to engage in the sector and help to inform men and women producers that cash crop groundnut production can be a reliable income source. Additionally, this extension support will improve production practices, particularly around pest disease control and crop management. Improve the extension of government services and expand NGO-based extension services and farmer leaders training to complement government efforts: This indirect intervention is to train farmer leaders as local level agricultural extension workers – the existing Government Agriculture Inspectors can be used as resource people during the training. Village level farmer leaders should ideally be trained for this, in addition to the field officers of local NGOs (if a skills gap exists). An initial monthly allowance can be provided for the successful delivery of extension services up to 6 months. This response will help minimize farmer level field issues and increase the groundnut production with proper production methods.

Support expansion of the number of seed production farmers & include them in the seed certification services: This is in line with the government groundnut seed production programme, and with the intention to scale-up government efforts. This can be done by directly providing farmers with seeds, fertilizer, farming equipment and technical training programmes for quality seed production, with the understanding that those farmers will re-distribute the seed produced to other farmers in the community. This intervention will promote more seed farmers and can be linked into government seed certification efforts. Provision of good quality seeds as in-kind grants to farmers (Walawa variety): This direct intervention is for a pilot introduction to the target districts of a different groundnut variety to selected farmers based on optimal conditions for this jumbo peanut variety. The Walawa variety has a high market demand and the price is Rs.250-275/kg. The yield is also high (about 2.8-3.5MT/ha) and is more pest/disease tolerant. Introduction of this variety into the target district (it is currently being produced in Eastern districts) will increase the quality groundnut production and increase farmer’s incomes.

Identify areas where irrigation systems can be quickly rehabilitated to increase groundnut yields: This indirect intervention is to advocate to relevant organizations (irrigation department, NGOs etc) to repair irrigation and water supply systems. This will increase the groundnut production by cultivating three seasons per year including the uncultivated lands due to irrigation problems.

Strengthen farmer organizations through provision of machines, leadership training, re-establishment of revolving credit funds, equipment and introduction of social audits: This indirect intervention is to enhance the capacities of farmers to maximize resources, provide collective bargaining power with middlemen and forward sales agreements. This intervention will also be beneficial for other crops as well as groundnut. These farmer organizations can be strengthened by a series of programmes to sharpen the leadership skills, fund management, train local extension service officers, provide machines and tools and enable access to farm services and credit. Support is recommended to re-start revolving fund systems using income generated from renting agricultural equipment for the second season. Promote private sector investments for groundnut production and processing: Private sector actors are currently playing a relatively small role in the groundnut market chain as processors. However, there are significant opportunities for these businesses to invest in


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improving and expanding processing systems to add value to the current local groundnut production. Such investment could increase demand for local production and create jobs for some of the most vulnerable people - those without land, women and people with disabilities. Farmer organizations and women’s groups already process groundnuts to a limited extent, and these activities, in addition to new businesses, can be scaled up with investments from private sector businesses engaged in groundnut processing and value-addition services.

5.6 Response Options Framework

The map below highlights where in the market system each recommendation can be implemented to address a market constraint that is limiting the ability of producers to maximize income from groundnut production.


PRIVATE SEED SUPPLIERS

AGRICULTURE RESEARCH DIVISION SEED SUPPLIERS

Improve Extension services

Increase seed production capacity

Increase production capacity

Export Development Roard

MIDDLEMEN Rs. 110-120/kg

Key infrastructure, inputs and market-support services

PRODUCT DIVERSIFICATION

AGRERIAN DEPTEXTENSION SERVICE

IMPORTS 4005MT

LARGE SCALE PRODUCER 20-30 MT Rs. 120/kg

SMALL SCALE PRODUCERS 50-60 MT Rs. 110/kg

Import/Export Ministry

The market environment: institutions, rules, norms and trends

MICRO FIANCE

AGRICULTURAL TOOLS AND MACHINERY

MOBILE VENDERS Rs. 400/=. 3-5MT

RETAIL SHOPS Rs. 400/kg. 5-10MT

LOCAL VENDERS Rs. 150/kg. 3-5MT

WHOLESALERS Rs. 140/kg. 60-70 MT

Ministry of Agriculture & Livestock

Advocacy to repair irrigation

TRANSPORT & ROADS

STORAGE

OUTSIDE PROCESSORS 12-14MT

Ministry of Irrigation

Processors 2

Traders 1

Target Groups

Colour Key

BANKS

OUTSIDE CONSUMERS

RETAILERS PROCESSED ITEMS

LOCAL CONSUMERS

MARKET INFORAMTION

Presidential Task Force

LOCAL PROCESSORS 6-7MT

Strengthen Frmer Organizations

FERTILIZER SUPPLIERS

Support processing centers, promote private investors sector

Ministry of Economic Development

INGO’s/NGO’s

FARMER ORGANIZATIONS

Subsidy Policies

Present situation of the Ground Nut Critical Market System in Kilinochchi and Mullaitivu

Figure 5.3 Response Framework Map for Ground Nut Market System Emergency Market Mapping and Analysis Sri Lanka

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Emergency Market Mapping and Analysis-Sri Lanka