Agricultural inputs

Agricultural innovation, especially the application of new seeds, fertilizers and machinery, is the most effective way to increase productivity of the majority of the poor in the Ambalantota region. Considerable changes are already underway, with many more farmers using two wheel tractors and mechanized threshers, driven in part by lower prices - tractors are now produced in China and Pakistan, rather than Japan. Additionally, local sellers of agricultural inputs are becoming more competitive - new stores are opening up and existing stores are having to innovate.

S. B. Damith Chaminda - Dealership for Haley's Farm Machinery

Current business

Mr Chaminda sells tractors (2 wheel and 4 wheel), three-wheeler goods transporters and small threshing machines. His business is growing fast. He only opened 8 months ago and he plans to turn over Rs25m ($250k) in his first year.

He learnt the trade from previous employment with Haley's. This experience is vital - it showed him how to market to rural buyers. He says it is most important to go to villages to explain the product. He has created leaflets, runs demonstration days and holds local meetings - spending time with the customers. His main problem to date has been getting sufficient supply.

The level of his success indicates pent-up demand in rural areas. "As soon as we went there people wanted to start buying" says Mr Chaminda. "I am already Haley's best seller in the South. They are sending me on holiday to Italy and France as recognition."

One of the reasons for Mr Chaminda's success is that the price of agricultural machinery has fallen rapidly. For example, Japanese made hand-held tractors previously cost Rs300,000 ($3,000). Chinese produced tractors are now available, which cost only Rs140,000 ($1,400).

Leasing is popular, but banks do not appear to do a good job of selling. Government banks require a number of documents, such as land title deeds and birth certificates, which poor farmers do not have. Private banks are simpler, since they only ask for a bank card and a bank book. But there are opportunities to improve the sales process of these banks too - few give Mr Chaminda leaflets that explain their product to potential customers, none join him on his sales trips to villages.

Future business

Mr Chaminda wants to grow his facilities, build an office, a workshop, buy a compressor, so he can also service and mend machinery. Although he could get a bank loan, he does not think it will be necessary - his current profits should be sufficient to cover the investment.

Project to introduce orchid farming

The region around Ambalantota is well suited to orchid farming - it is very hot and humid. There is also good demand from the tourist industry, both in Sri Lanka and in the Maldives.

Many village women already grow orchids as decoration. The Government, in partnership with the SANASA Development Bank, is now helping them to grow commercially. The Government has given training to the first women in the scheme and is supplying advice on commercialization. SANASA Development Bank is supplying a Rs25,000 ($250) loan, which is sufficient to buy a frame, nets, 300 seedlings and fertilizer. The loan is for 3 years, with a 6 month grace period. Interest is just 9%, since the loan funds are provided by a subsidised from a Government program (the Perennial Crop Development Scheme) which lends to SANASA at 3%. An officer from the bank will visit the participating villages regularly to collect repayment.

Orchid farming should be good business. A local cooperative will pay Rs5 per flower. Each plant grows a new stem of 10 flowers every few months, creating a maximum annual revenue of Rs300 per plant, or Rs 90k ($900) per person. The rural women can do this business from their own home and it does not take much of their time so they can combine it with existing work or child-raising.

The initial government pilot project will be rolled out to 60 women. If it goes well, others should copy and the SANASA Development Bank will supply more loans. The Government hopes the industry will grow and Sri Lanka will export orchids to Japan, the Middle East and eventually Europe.

Social investing

Lending and leasing opportunities

There appears to be considerable innovation in the agricultural sector in Ambalantota. The SANASA Development Bank has seen fast growth in agricultural lending over the past year - lending for agricultural machinery has more than doubled.

There should be opportunities to increase leasing. Although a number of banks offer leasing, their marketing and sales capabilities may not be well developed. A joint venture or management agreement with an external leasing company could help an individual company and help transform the market.

Funding support

Promote linkages

The core of the success of all the companies visited was outreach to village communities. While they are clearly having success, there may be opportunities to increase this success by linking with established community based organizations, such as cooperatives or microfinance networks.

Training and expertise assistance

Agricultural input retailers provide a vital service to farming communities, increasing productivity so increasing farmers' incomes. External funding could help this process in a number of ways. For example, funders could subsidize trainers to work along-side the salesmen to introduce new techniques or products. Funders could also introduce a new technology or crop by providing a coordinated 'package' of advice, inputs (such as seeds) and initial subsidies to create a new market, along the lines of the Government orchid program.