Technical Assistance to the Modernisation of
Agriculture Programme in Sri Lanka
EuropeAid/138-539/DH/SER/LK Technical Assistance to the Modernisation of Agricultural Programme in Sri Lanka (TAMAP)
VALUE CHAIN DEVELOPMENT STUDY - AQUACULTURE
May 2019 vice Contract No 2007 / 147-446 Submitted to
This project is implemented by a Consortium led by Ecorys Nederland, B.V
Technical Report: VALUE CHAIN DEVELOPMENT STUDY - AQUACULTURE
Technical Assistance to the Modernisation of Agriculture Programme in Sri Lanka
Project title: Technical Assistance to the Modernisation of Agriculture Programme in Sri Lanka Project number: ACA/2017/389-911 Country: Sri Lanka Address: Ecorys Nederland B.V Watermanweg 44 3067 GG Rotterdam The Netherlands
Tel. number: T: +31 10 453 86 76 Fax number: F : +31 10 453 87 55 Contact person: Bart Provoost [email protected]
Date of report: 6 May 2019 VCD Studies Assignment period: 15 April to 2 May 2019
Disclaimer. The content of this report does not reflect the official opinion of the European Union. Responsibility for the information and views expressed lies entirely with the author(s) and the consortium led by Ecorys Nederland BV for the implementation of TAMAP
Technical Assistance to the Modernisation of Agriculture Programme in Sri Lanka
PROJECT SYNOPSIS
Project Title: Technical Assistance to the Modernisation of Agriculture Programme in Sri Lanka
Project Details: Project Ref. EuropeAid/138-539/DH/SER/LK Programme Dr Olaf Heidelbach No: Manager
Date of 8 January 2018 Contracting Delegation of the European Union to project Authority Sri Lanka and the Maldives start: 389 Bauddhaloka Mawatha, Colombo 7, Sri Lanka Contract 36 months Name of Project Manager: Eleanor Harvie Duration: contact Project Director: Nick Smart person (Contractor): Contract ACA/2017/389-911 Contractor’s Ecorys Nederland B.V No: name, Watermanweg 44 address, 3067 GG Rotterdam telephone The Netherlands numbers and T +31 (0)10 453 88 00 e-mail [email protected] address: [email protected] Total EUR 4, 167, 000 Team Leader Dr. Christof Batzlen contracted Postal Address: Ministry of National amount: Policies and Economic Affairs, Treasury Building, Lotus Road, Colombo 01, Sri Lanka.
Technical Assistance to the Modernisation of Agriculture Programme in Sri Lanka
TAMAP Value Chain Analysis Study on Aquaculture in Sri Lanka
1 EXECUTIVE SUMMARY...... 10 2 INTRODUCTION AND CONTEXT ...... 16 2.1 Introduction to the project ...... 16 2.2 Challenges of the agriculture sector in Sri Lanka and its reorientation ...... 17 2.3 Value chain and VCA4D methodology...... 18 2.3.1 What are value chains? ...... 18 2.3.2 VCA4D methodology ...... 18 2.4 Data collection...... 20 2.4.1 Secondary data ...... 20 2.4.2 Primary data ...... 20 2.4.3 Justification of selected value chains ...... 20 3 INLAND FISHERIES AND AQUACULTURE SECTOR ...... 24 3.1 Sector Overview in Sri Lanka ...... 24 3.1.1 Total fish production in Sri Lanka ...... 25 3.1.2 Inland and aquaculture fish production in Sri Lanka ...... 26 3.1.3 Major species in Sri Lanka ...... 29 3.1.4 Exports and imports of fish and fish products from and to Sri Lanka ...... 30 3.1.5 Production & exports of shrimps and ornamental fish from Sri Lanka ...... 31 3.2 Governance and Institutional framework ...... 33 3.2.1 Aquaculture policies and strategies ...... 33 3.2.2 Institutions responsible for and supporting the sector ...... 34 3.2.3 Legal framework and acts ...... 36 3.2.4 Export and market requirements and licenses ...... 36 3.3 Problems encountered in the aquaculture sector, namely shrimps and ornamental production ...... 38 3.3.1 Shrimps production ...... 38 3.3.2 Ornamental fish production ...... 42 3.3.3 Copying strategies of shrimp farmers ...... 43 3.4 Demand related aspects on aquaculture in Sri Lanka ...... 45 3.4.1 Size of local and export market in terms of value and volume for aquaculture shrimps ...... 45 3.4.2 Size of market in terms of value and volume for ornamental fish from Sri Lanka ...... 47 3.4.3 Competition ...... 48 3.4.4 Market share of major competitors in terms of value and volume of shrimps and prawns ...... 48 3.4.5 Market share of major competitors in terms of value and volume of ornamental fish ...... 50 3.4.6 Cost of production of major competitors compared to Sri Lanka ...... 51 3.4.7 Growth of the aquaculture market in Sri Lanka ...... 53 4 FUNCTIONS ...... 55 4.1 Function description ...... 55 4.1.1 Black tiger shrimps ...... 55
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4.1.2 Ornamental fish: Guppy ...... 56 4.1.3 Organizational functions along the chain ...... 58 4.1.4 Marketing networks and distribution channels ...... 62 4.1.5 Stakeholder strategies ...... 63 4.1.6 Horizontal and vertical coordination ...... 63 4.2 Flows of Product ...... 64 4.2.1 Value Chain Network Map ...... 64 4.3 Location of activities ...... 67 4.3.1 Areas of production, sites of marketing, places of consumption, ports for import and export ...... 67 4.4 Quantification ...... 70 5 ECONOMIC AND FINANCIAL ANALYSIS ...... 72 5.1 Contribution Analysis (distribution of margins along the value chain) ...... 72 5.1.1 Black tiger shrimps ...... 72 5.1.2 Guppy ...... 74 5.2 Gross Margin Analysis ...... 76 5.3 Contribution of VC to public sector finance and balance of trade ...... 80 5.4 Viability of the VC in international economy ...... 80 5.4.1 Shrimps ...... 80 5.4.2 Ornamental fish ...... 82 5.5 Competitiveness analysis ...... 82 5.5.1 Shrimps ...... 82 5.5.2 Ornamental fish ...... 83 6 TECHNOLOGICAL INNOVATION ...... 85 6.1 Overview and quality control system ...... 85 6.1.1 Fish processing in Sri Lanka ...... 85 6.1.2 Fish processing and canning ...... 86 6.1.3 Shrimp processing...... 86 6.2 Technologies used in fish processing ...... 87 6.2.1 IQF Processing ...... 87 6.2.2 Quick freeze preservation technology:...... 87 6.2.3 Drying or Dehydration ...... 88 6.2.4 Freeze Drying...... 88 6.2.5 Canning of fish and fish products ...... 89 6.2.6 Ready to Eat product in Retortable pouches ...... 90 6.3 Requirements for quality management systems in aquaculture value chain ...... 90 6.3.1 Legal framework and regulations...... 90 6.4 Laboratories and quality control system ...... 91 6.4.1 Hazards in the cold chain for fish...... 91 7 SOCIAL ANALYSIS...... 94 7.1 Working Conditions in the VC acceptable ...... 94 7.2 Land and water rights in VC acceptable ...... 94 7.3 Gender equality in VC ...... 94
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7.4 Food and Nutrition conditions in VC acceptable ...... 95 7.5 Distribution of social capital over the VC ...... 96 7.6 Social infrastructure and services acceptable ...... 96 8 ENVIRONMENTAL ANALYSIS ...... 97 8.1 Impact of aquaculture production on the environment ...... 97 8.2 Impact of climate change on aquaculture production ...... 97 9 OPPORTUNITIES, OUTLOOK AND RECOMMENDATIONS ...... 99 9.1 Opportunities ...... 99 9.1.1 Untapped potential in aquaculture ...... 99 9.1.2 Paddy-fish integrated farming ...... 99 9.1.3 Opportunities to create backward and forward linkages ...... 99 9.1.4 Potential to develop aquatic plant culture ...... 99 9.1.5 Cage farming...... 100 9.1.6 Captive breeding of endemic fish species for export...... 100 9.1.7 Shrimps farming in accordance with GAP and organic production...... 100 9.1.8 Potential to attract foreign investment ...... 101 9.2 Outlook...... 101 9.3 Recommendations ...... 101 9.3.1 Explore potential of introducing artificially bred immature crab to lagoons ...... 101 9.3.2 Take measures to return some of the abandoned ponds to shrimp production ...... 101 9.3.3 Involvement and assistance of the Government sector for technological enhancement and other support services ...... 102 9.3.4 Efficient mechanism to be established for transferring knowledge ...... 102 9.3.5 Promote sustainable aquaculture ...... 102 9.3.6 Promote use of more efficient technologies and best management practices ...... 102 9.3.7 Managing disease outbreaks ...... 103 9.3.8 Provide suitable public land for shrimp farming ...... 103 9.3.9 Brood stack management...... 103
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List of Tables Table 1: GDP of Sri Lanka according to various (sub) sectors at constant (2010) prices in billion LKR ...... 25 Table 2: Total fish production in Sri Lanka from 2015-2018 in metric tons ...... 25 Table 3: Inland fish catch by major species in metric tons and growth rate ...... 29 Table 4: Exports of shrimps and prawns from Sri Lanka and world trade ...... 46 Table 5: Sri Lanka’s exports of ornamental fish compared to world imports in thousands US $ ...... 48 Table 6: Major export markets for shrimps and prawns from Sri Lanka in 2016 ...... 48 Table 7: Major export markets for shrimps and prawns from Sri Lanka produced under aquaculture ...... 49 Table 8: Exports of shrimps & prawns from Sri Lanka and major competitors ...... 49 Table 9: Major export markets for ornamental fish from Sri Lanka in 2016 ...... 50 Table 10: Exports of live ornamental freshwater fish from Sri Lanka ...... 50 Table 11: Imports of ornamental fish worldwide and major importing countries ...... 51 Table 12: Comparison of production costs for shrimps in various Asian countries in US $ / kg ...... 52 Table 13: Comparison of costs of components contributing to production costs for shrimps between India and Sri Lanka in US $ ...... 52 Table 14: Shrimps produced and exported in metric tons ...... 53 Table 15: Projections for aquaculture shrimp production ...... 54 Table 16: Black tiger shrimp industry quantification based on shrimp producing areas ...... 70 Table 17: Distribution channel Farmer …> Wholesaler ….> Retailer for shrimps ...... 72 Table 18: Distribution channel Farmer …….> Supermarket for shrimps ...... 73 Table 19: Distribution channel Farmer …….> Exporter for shrimps ...... 74 Table 20: Distribution Channel Farmer…….> exporter for Guppy ...... 75 Table 21: Distribution Channel Farmer ……> Retail market for Guppy ...... 76 Table 22: Gross margin analysis for average black tiger shrimp farmer ...... 77 Table 23: Gross margins for an average Guppy farmer...... 79 Table 24: Hazards in the cold chain for Fish ...... 92
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List of Figures Figure 1: Scope of the functional, economic, social and environmental analysis ...... 19 Figure 2: Global seafood consumption – now and future ...... 21 Figure 3: Worldwide aquaculture capture fish production ...... 22 Figure 4: Selected shrimp cultures for value chain analysis ...... 22 Figure 5: Examples of ornamental fish selected for the value chain analysis ...... 23 Figure 6: Comparison of marine fish and inland & aquaculture fish production in Sri Lanka from 2004 - 2017 ...... 26 Figure 7: Aquaculture and inland fish production, MT (1999-2017)...... 27 Figure 8: Imports and exports of fish & fishery products to and from Sri Lanka in metric tons and value in million LKR ...... 30 Figure 9: Export value of fish products from Sri Lanka in US$ thousands ...... 31 Figure 10: Shrimps produced in Sri Lanka and exported in metric tons ...... 32 Figure 11: Export value of ornamental fish from Sri Lanka ...... 33 Figure 12: New trends in fisheries & aquaculture markets ...... 37 Figure 13: Production cost and farm gate prices (in LKR / kg) for shrimp (2008-2018) ...... 39 Figure 14: Stakeholder map for shrimp and guppy value chains ...... 60 Figure 15: Value chain functions map for shrimp and guppy ...... 61 Figure 16: Network map for black tiger shrimp value chain ...... 65 Figure 17: Network map for Guppy value chain ...... 66 Figure 18: Export earnings by the aquarium ornamental fish sector ...... 80 Figure 19: See food exports from Sri Lanka to major markets ...... 81 Figure 20: Aquarium fish exports from Sri Lanka and major ornamental fish exporting countries ...... 82 Figure 21: Process flow chart for the Integrated Quick Freeze ...... 87
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List of Photos Photo 1: Rehabilitation of virus infected ponds ...... 40 Photo 2: Black tiger shrimps pond ...... 56 Photo 3: Guppy farming in cement tanks ...... 59 Photo 4: Black tiger shrimps and brooder ...... 69 Photo 5: Guppy mature fish ...... 69 Photo 6: High quality Guppy exported from Sri Lanka ...... 84 Photo 7: Modern freeze drying unit for shrimps ...... 89 Photo 8: Women working in a shrimp processing factory in Chilaw ...... 95 Photo 9: Flood affected shrimp farms ...... 98
Units and measurements
Old system of measurements Modern, commonly understood measurements 1 acre 0.4048 ha = 4,048 m2 1 mile 1.6093 km 1 foot or feet 30.48 cm 1 acre feet (volume) 1,233.5 m3 1 cusec (1 cubic foot per second) 0.2832 m3 1 bushel of paddy rice 22.5 kg paddy rice 1 square mile 2.59 km2 1 US$ 180 LKR
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ACRONYMS
€ Euro AEO Agricultural Extension Officers ASC Agricultural Service Centre AsDB Asian Development Bank CARP Council for Agricultural Research Policy CBC Ceylon Business Council CBO Community Based Organisation CFA Core functional analysis CRI Coconut Research Institute CRIDF Climate Resilience CSA Climate Smart Agriculture CSEF Civil Society Environmental Fund CSO Civil Society Organisation DEA Department of Export Agriculture DoA Department of Agriculture EC European Commission EDB Export Development Board EDF/BUDGET European Development Fund EEP Economic Empowerment of Poorest EU European Union EUD European Delegation FAO Food and Agriculture Organisation FDI Foreign Direct Investment FIRST Food and Nutrition Security Impact, Resilience, Sustainability and Transformation FO Farmer Organisation GAP Good Agriculture Manufacturing Practices GAP Good Agricultural Practices GDP Gross Domestic Product GMPs Good Manufacturing Practices GoSL Government of Sri Lanka ha Hectare (10,000 m2) HKARTI Hector Kobbekaduwa Agrarian Research and Training Institute HR Human Resources
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HRM Human Resource Management ICRISAT International Crops for Research in Semi Arid Tropics ICT Information Communication Technology IFPRI International Food Policy Research Institute ILRAD International Livestock Research Institute IPARD Institute for Participatory Agricultural Research Inst ITMIS Information Technology Management Information System JICA Japanese International Cooperation Agency JPAs Job Performance Aids KE Key Expert KPI Key Performance Indicator M&E Monitoring & Evaluation MEDA Microenterprise Development Association MEDC More Economically Developed Countries MOA Ministry of Agriculture MOF Ministry of Finance and Mass Media MONPEA Ministry of National Policies and Economic Affairs MoPI Ministry of Primary Industries MTEF Medium Term Expenditure Framework NAO National Authorising Officer NAP National Agriculture Policy NAP New Agriculture Policy NFPP National Food Production Programme NGO Non-Government Organisation NKE Non Key Expert NLDB National Livestock Development Board NPD National Planning Department NRM Natural Resource Management NSS National Statistics Service OECD Overseas Economic Council for Development OFCs Other field crops PAF Performance Assessment Framework PEP Performance Enhancement Programme PET Public Expenditure Tracking PFM Public Finance Management PIP Public Investment Programme
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PMU Project Management Units PPP Public Private Partnerships PSC Project Steering Committee R&D Research & Development RDD Rubber Research Department RMS Resource Management System RWASH Rural Water Sanitation and Hygiene SACCOs Savings And Credit Cooperative Organisations SRC Sector Reform Contract SDDP Support to District Development Programme SL Sri Lanka SLBDC Sri Lanka Business Development Centre SLCARP Sri Lanka Council for Agricultural Research Policy SMART Specific, Measurable, Accurate, Realistic, Timebound SWOT Strengths, Weaknesses, Opportunities, Threats T&V Training and Visit TAT Technical Assistance Team TACIS Technical Assistance to the Commonwealth of Independent States TAIEX Technical Assistance and Information Exchange of the EU TAMAP Technical Assistance to the Modernisation of Agriculture Programme in Sri Lanka TNA Training Needs Analysis ToRs Terms of Reference TOT Training of Trainers TRI Tea Research Institute USAID United States Agency for International Development WB World Bank WUAs Water Users Associations
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1 EXECUTIVE SUMMARY
Introduction and context This value chain study on aquaculture in Sri Lanka is part of a series of value chain studies and a pre-feasibility study on cold chain carried out by the Technical Assistance to the Modernisation of Agriculture Programme in Sri Lanka (TAMAP) team in order to assist the GoSL and the EUD SL in developing an overarching agriculture policy and implementation strategy aiming on increasing the productivity and efficiency of the agriculture sector among others by programming specific interventions. Though the importance of the agriculture sector has decreased over the last years in Sri Lanka, there are still opportunities for diversified and commercially oriented farming. As such, TAMAP identified inland fisheries and aquaculture as offering potential for further development. In view of that, a value chain analysis study on shrimps production and ornamental fish production has been commissioned to assess the value chain for black tiger shrimps and guppy. The methodology applied in this study follows to a large extent the EU facilitated value chain analysis for development (VCA4D), apart from conducting a detailed economic effects analysis. Field investigations took place at the west coast in Puttalam District, Negombo and in Colombo. Batticaloa was also envisaged to be visited, but due to the bomb blasts on Easter Sunday and the subsequent curfew and emergency situation it was not advised to undertake major travelling activities. Furthermore, due to these events, also a number of exporters and processors were not available for site visits.
Inland fisheries and aquaculture sector in Sri Lanka Marine and freshwater fishery products constitute 1.3 % of the overall GDP of Sri Lanka in 2017 and 18.5 % of the agriculture GDP with marine fish & aquaculture 16.1 % and freshwater fish & aquaculture 2.4 %. Inland and aquaculture fish production grew at an average rate of 7% during 2008-2017. Marine fish production is characterised by steeper increases, however also steeper declines of the growth rates. From 2004 to 2017, the total growth rate of marine production was 32.6 % which corresponds to an annual growth rate of 2.5 %. On average, the inland & aquaculture fish production remains relatively stable with a share of about 15-16 % of the marine fish production. In 2000, 40.8 % of the shrimps produced were exported and in 2001 36.2 %, respectively. This percentage drastically declined since that time resulting that in 2017, only about 8.2 % of the shrimps produced were exported. This development has been attributed to various reasons such as reduced quality of the shrimps (white spot virus disease among others) making it difficult to export, smaller sizes of shrimps as a response to increased feed costs with harvest of the shrimps after 3 months instead 4 months (less export demand for smaller sizes), but also higher demand and hence, relative higher prices on the domestic market discouraging shrimp producers to export. Whereas Sri Lanka’s share in world trade (exports) for most of the fish and fisheries products is negligible at less than 0.4 %, Sri Lanka’s share in world’s exports of ornamental fish (freshwater and seawater) has been estimated at 4.6 % (ICT Trademap statistics). The key export markets for Sri Lankan Aquarium fish include the USA, Japan, the United Kingdom, Germany and France. There are also emerging markets such as Qatar and Canada, demonstrating high growth in demand for Sri Lankan ornamental fish.
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Governance and entities supporting the sector The Department of Fisheries and Aquatic Resources is responsible for the implementation of policies, laws, plans and programmes on central level as well as departments and regional and local-level state organizations on provincial level. The National Aquatic Resources Research and Development (NARA) is primarily responsible for conducting research and establishing policies designed to improve and conserve fishery resources, in particular mapping resources to determine stock levels and rate of exploitation. The National Aquaculture Development Authority (NAQDA) is involved in the extension and development of aquaculture in marine and inland aquatic resources. It is mandated to develop freshwater, brackish water, coastal aquaculture and marine-culture operations to increase fish production and consumption, develop small, medium and large-scale private sector investment in aquaculture and creation of employment opportunities, promote the farming of high-valued species and optimum utilisation of aquatic resources, conserve and develop aquatic resources through environmentally friendly aquaculture programmes. The Sri Lanka Standard Institution (SLSI) is tasked to monitor and supervise exporters and ensure that they adhere to all regulations imposed by GoSL but also by the various importing countries. The Export Development Board (EDB) is responsible for promoting fish and fish product exports and it also provides capital grants at concessionary interest rates to selected exporters enabling them to upgrade their processing units according to HACCP standards.
Problems encountered in the aquaculture sector and coping mechanisms All respondents consulted during the field investigations mentioned that the production costs in Sri Lanka would be very high – higher than in other shrimps producing countries in South and South East Asia. The high costs would be attributed to expensive imported feed, high labour costs and high electricity costs. We spent considerable time to verify or falsify that. Evidence from slightly outdated cost (10 years and older) comparisons suggest that production costs of shrimps were in Sri Lanka more on the lower side and lower than the main competitor – India. Some latest data obtained from India show that the production costs of black tiger shrimps in India amounts to 4.5 US $ / kg whereas our calculations (see gross margin analysis in Section 5) imply that they are with 3.36 US $ / kg significantly lower. Furthermore, we compared cost of major cost components such as feed, electricity and labour between India and Sri Lanka. Whereas the price of feed is lower in India, labour and particularly electricity are significantly higher (electricity for domestic purposes in Sri Lanka is high with 45 LKR/ kwh, but for industrial purposes it is just 25 %). A major challenge for black tiger prawn production is the occurrence of the white spot syndrome virus, which significantly reduces the survival rate of larvae and shrimps. Shrimps farmers bordering the lagoon at Chilaw suffer in particular of this virus since the water in the lagoon seldom receives fresh water from the river and all farmers share the same conveyance system and drainage canal. This virus cannot be cured, but with proper management the occurrence can be reduced. One possibility to overcome this problem is to replace the black tiger prawn by another variety, the P. Vannamei, which is less sensitive to this virus. Another option could be to relocate the production from the west to the east coast where pristine water conditions exist and where the virus is not prevalent. Contrary to the black tiger prawn production, production of ornamental fish is characterised by less challenges. There are no major problems related to the production process. Challenges are related to the inexistence or insufficient number of direct flights to the main fish importing
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destinations, the packing methods or limited market intelligence with a view to identifying new markets.
Market for aquaculture shrimps and ornamental fish Main markets of black tiger prawns have in the meantime become the local markets adjacent to the production facilities and the regional markets (mainly larger towns in Sri Lanka) and in particular supermarkets and hotels and restaurants. Whereas the demand of supermarkets and hotels for aquaculture shrimps was estimated at 56 % of the total aquaculture shrimp production, it is expected that by end of 2021 already 62 % of the total aquaculture shrimps production will be supplied to supermarkets and hotels & restaurants. Export markets have become increasingly less relevant for the last 10 years. For shrimps and prawns Sri Lanka captures only a very small portion of the world market i.e. not even 0.1 %in quantity and also not in terms of value apart from year 2017. It should be noted that Sri Lanka is exporting shrimps either i) with head (100 % recovery), ii) headless (65 % recovery) and iii) peeled (50 % recovery). With regard to ornamental fish production, Sri Lanka boasts to be the tenth biggest producer worldwide. Given the total ornamental fish exports in 2017 with a total value of US $ 14.892 million, the exports from aquaculture ornamental production constitutes 49 %.
Competition, competitors and outlook Sri Lanka’s imports of shrimps and prawns are relatively negligible – only 40 tons were imported in 2017, which indicates that the aquaculture production does not seem to face much competition from abroad. This compares to 1,844 tons of exported shrimps and prawns in 2017 (see Figure 11) resulting in 2.2 % of imported shrimps and prawns compared to exported quantity. Japan is the most important market for Sri Lankan shrimps and prawns. According to statements made by several exporters, Sri Lankan prawns are characterized by red colour which is demanded in Japan. Japan is with the USA the main international importer of shrimps and prawns and Sri Lanka only captures about 1% of the Japanese imports and less than 0.5% of the US imports. Sri Lanka appears to get a better price per kg on the Japanese market but the Japanese market is also the most demanding market in terms of quality standards. A crucial question is whether Sri Lanka can compete with major shrimps producers and exporters. The value and quantity of shrimps exported from Sri Lanka constitutes a marginal share compared to Argentina or India and other Asian countries. The value exported from Sri Lanka is estimated at 0.4 % of the exports from India. FOB prices of shrimps from Sri Lanka are approximately 65 % higher than those of Argentina and Ecuador and still about 20 % higher than those from India. This means that Sri Lanka’s shrimps are characterized by a higher quality. With regard to ornamental fish, in 2017 Sri Lanka exported ornamental freshwater fish amounting to 7.281 million US$ to the world. Major recipients of ornamental fish from Sri Lanka are USA, followed by UK and then by Germany. USA, for instance imported ornamental freshwater fish worth US$ 48.222 million in 2017. Ornamental freshwater fish worth US$ 1.573 million came from Sri Lanka which constitutes about 3.2 %. Germany imported ornamental freshwater fish worth US$ 14.629 million in 2017. Ornamental freshwater fish worth US$ 0.829 million came from Sri Lanka which constitutes about 5.6 %. This shows that theoretically, there is still large potential for further exports from Sri Lanka to its traditional trading partners. It is anticipated that Sri Lanka has an opportunity to increase its revenues from the aquaculture shrimps sector with main focus on the local and regional market within Sri Lanka (the two
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markets are domestic markets). Evidence from the last 20 years suggests that it cannot be expected that the export volume will significantly increase. Ornamental fish production is practically only for exports. Peak of exports was in 2016 declining then in the subsequent 3 years. Nonetheless, the overall growth rate of ornamental fish exports from 2009 to 2018 was 51 % resulting in an average annual growth rate of 5.6 %. Assuming a similar growth for the future, it is estimated that by 2021, the value of exports of ornamental fish totals to US $ 15.176 million.
Margin and gross margin analysis Evidence from our calculations suggests that the distribution of margins of the various value chain actors is relatively evenly distributed for shrimps production following the farmer- wholesaler-retailer value chain. The producer gets a margin of 16.3 %, the wholesaler 15.8 % and the retailer keeps a margin of 16.1 %. Costs of production account for 50 % of the value contribution. For the farmer-supermarket value chain, the distribution of margins is less evenly distributed. The farmers gets a margin of 16.5 % whereas the supermarket gets a margin of 36 %. Cost of production accounts for 46.15% of the value contribution. Margin analysis for ornamental fish is less evenly distributed. Using the farmer-exporter market channel, the farmers gets a margin of 4 % whereas the exporter obtains a margin of 53%. Gross margins for shrimps production were calculated at 3,600 US $/ha pond size per year. For Guppy, the gross margins were estimated at 3,038 US $ / ha (gross area including infrastructure and not only ponds).
Social Analysis Whereas shrimp farming is mainly done by men, processing of shrimps in the factories is predominantly done by women. Ornamental fish producers are exclusively men. The shrimps industry greatly benefitted from the rehabilitation of infrastructure after the civil war since new roads and bridges reduced the transportation time.
Environmental Analysis: impact of aquaculture on the environment Shrimp farm effluents contain significant nutrient and suspended solid loadings. This has resulted in increased turbidity and Biochemical Oxygen Demand (BOD) in the lagoons where aquaculture shrimps farming is concentrated including the Dutch Canal. Significant increases in nitrite, sulphide and ammonia concentrations were observed that deteriorate the water quality.1 The land use pattern has changed with agricultural land converted to shrimp farms. Significant areas of mangroves and salt marshes have been converted. Due to limited access to brackish or fresh water in the shrimp farming area, farmers are restricted to taking their source water from the same canal that they discharge their pond effluent into. Further due to unplanned development, inlet and outlet canals of adjoining farms are closely located. The result is intake of discharged water with suboptimal water quality from one farm into an adjoining farm. This situation contributed to a several disease outbreaks that resulted in closure of up to 50% of the farms in 1997, shrimp farms, and has become a chronic on-going problem since then.
1 Environmental assessment of shrimp farming in Sri Lanka, in: Composite Guidelines for the Environmental Assessment of Coastal Aquaculture Development, SEACAM 1999
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Like all major aquaculture shrimps producers in South and South-East Asia, Sri Lanka is also heavily using antibiotics.2 The most important issue of antibiotic release into the environment is the development of antibiotic resistance which has resulted in the reduction of therapeutic potential against human, and animal pathogens.3 A steady stream of organic waste, chemicals and antibiotics from shrimp farms can pollute groundwater or coastal estuaries. Salt from the ponds can also seep into the groundwater and onto agricultural land. This has had lasting effects, changing the hydrology that provides the foundation of wetland ecosystems.4 With regard to ornamental aquaculture production evidence from the field investigations suggests that most aquariums release polluted water into the waterways when tanks are cleaned which then increases the possibility of disease spread.
Environmental Analysis: impact of climate change on aquaculture Climate change negatively affects shrimp farmers by having significantly reduced yields. On the one hand, climate change leads to frequent droughts which increases the water temperature and reduces the water availability both resulting in a higher mortality of the shrimps. One the other hand, more often floods occur which is detrimental to the survival rate of the shrimps. With regard to ornamental fish farmers, it can be ascertained that climate change also has negative effects by generating additional heat stress in ponds and reduces the availability of oxygen.
Opportunities, outlook and recommendations According to NAQDA, only 25% of the potential area is used for aquaculture. 75 % remains idle at this juncture. Further expansion of aquaculture could be pursued by paddy-fish integrated farming which is not done at all in Sri Lanka. In the Philippines, rice in fish farming is a common technique. There are also opportunities to generate backward and forward linkages in the aquaculture sector by using aquaculture by-products such as shells to produce cement and lime but also to generate manure. With regards to shrimps production, Sri Lanka has significant potential to produce and successfully market it on the local and regional market (domestic) within the island. It is not expected that the exports of shrimps will show significant growth rates due to internal problems, e.g. white spot virus, less productive smallholder production and concentration on environmentally challenged areas, but also because of the strong competition from countries, which have a much larger potential for production. Nonetheless, any expansion of shrimp production has to adhere to environmentally sound and sustainable management practices to reduce its negative impact on the environment. The introduction of standards such as Good Agriculture Practices (GAP), Good Manufacturing Practices (GMP) or organic shrimps production might give the right direction. Furthermore, since any new development of shrimps production schemes should take place in the eastern part of the island, organic shrimp
2 It should be noted that practically 100 % of the feed for shrimps is imported. Some farmers use chicken manure to fertilise the ponds. This practice, however is diminishing. Feed for ornamental fish is usually also imported, except for algae which are produced by the breeders.
3 Pathmalal M. Manage; Heavy use of antibiotics in aquaculture: Emerging human and animal health problems – A review; in Sri Lanka J. Aquatiic Science; 2018.
4 WWF, https://www.worldwildlife.org/industries/farmed-shrimp
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production which requires pristine resources could be also considered. Examples from Bangladesh suggest that the prospects for organic shrimp farming are positive under the condition that a holistic ecosystem approach is pursued in which all actors along the value chain including the regulatory authorities are working together.5 In 2018, COOP from Switzerland started facilitating a 1,000 ha pilot project on organic black tiger shrimps and envisages to extend the project to other locations of India. The Sri Lankan shrimps industry might liaise with this project in the near future to assess the application of organic shrimps production to Sri Lanka.6 With regard to ornamental fish, Sri Lanka has considerable potential for further production and exports. Sri Lankan large ornamental fish producers are very competent and are also innovative in developing new breeds. However, it also has to be noted that the market for ornamental fish is subject to high competition and up to now the absolute volume of exports is very marginal with currently an export value of currently approximately US $ 16 million. The study team proposes the following recommendations related to aquaculture which could be picked up by any development partner: • Rehabilitation of abandoned ponds and put them back into production • For white spot virus affected farms and areas, initiate a rehabilitation programme where all the ponds will be dried out, disinfected, rehabilitated and an improved conveyance and drainage system be established with buffer ponds to reduce the occurrence of the virus • Concentrate new developments only in the East on pristine land and water sources • Facilitation of a best practices certification system for aquaculture production • Capacity building programme for shrimps farmers to train them in disease management, farming as a business and record keeping. Interesting to note that the issue of cold storage facilities was not considered as a major problem. Large farms which are also exporters or processors have their own cooling trucks (with ice) and pick up the shrimps from their own farms as well as from smallholder farmers. Aquaculture farmers reported that this system works very well and no major investment in cold chain infrastructure would be required at this juncture.
5 B.G. Paul and C.R. Vogl; Key Performance Characteristics of Organic Shrimp Aquaculture in Southwest Bangladesh, in: Sustainability 2012,5,995-1012.
6 https://krishijagran.com/news/towards-export-oriented-organic-aqua-farming/
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2 INTRODUCTION AND CONTEXT
2 . 1 Introduction to the project
The Technical Assistance to the Modernisation of Agriculture Programme in Sri Lanka (TAMAP) service contract, implemented by a consortium led by ECORYS, started with the mobilisation of the Technical Assistance Team (TAT) on 8th January 2018. The project will have an operational phase of 36 months and will end on 7th January 2021. The objective of the service contract is to contribute to a more productive, sustainable, diversified, climate-resilient, market-oriented and inclusive agriculture in Sri Lanka. The following four (4) results have to be accomplished within this service contract. They are: Result 1: An overall (overarching) Agricultural Policy in line with the Government Development Goals is developed. Result 2: An enabling environment is created and relevant policies for the modernisation and diversification of agricultural production, as well as the promotion of agricultural exports, are implemented. Result 3: Existing systems and practices used by central and provincial agricultural ministries for planning, budgeting and policy implementation are improved. Result 4: The statistical and analysis systems to monitor and assess the impact of implementing the overall agricultural policy are improved.
The threads running through these five critical elements are the coordination, facilitation, training, mentoring and mainstreaming of cross-cutting issues such as climate change, gender, youth and smart nutrition. One of the main activities of the TAMAP is to develop in close consultation with the stakeholders an Overarching Agriculture Policy (OAP) and based on that an Implementation Strategy specifying detailed action plans and costs for all relevant subsectors with the main objective to make the entire agriculture sector more productive, effective and efficient. Several assignments are being carried out to support the development of the overarching policy and its implementation strategy as well as to assist the EUD Sri Lanka in the programming of future interventions. As such 8 value chain studies on commodities with future potential for development and a cold chain pre-feasibility study are and will be carried out to assess and recommend future interventions in the agriculture sector. The EU Delegation of Sri Lanka in close collaboration with the TAMAP team has started in 2018 the programming of the next EU funded interventions namely the AAP 2019 and AAP 2020 with a total allocation amounting to € 47 million. AAP 2019 with an indicative allocation of € 22 million intervention will focus on the improvement of the quality and safety of selected agricultural and fishery products for domestic and international markets by Supporting the development of a cold chain infrastructure and management system; i. Improving the food quality and food safety control system in line with international best practices to ensure the safety of Sri Lankan consumers and to enhance the quality and variety of products for the local market as well as for international export. This will strengthen the competitiveness of Sri Lankan export products and maximize synergies with ongoing trade-related assistance as well as GSP+; and
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ii. Piloting modernization of organic food market through measures such as certification and labelling, digitalization of supply chain and traceability and developing an incentive scheme for private investment.
2 . 2 Challenges of the agriculture sector i n S r i L a n k a and its reorientation
Agriculture has been an important driver of poverty reduction through income and employment generation in Sri Lanka. Although Sri Lanka has a history of exporting agricultural products a large part of the agricultural population remained highly traditional with archaic relations to markets and commercial networks. Also, the share of GDP generated by agriculture sector decreased as other sectors gained more prominence. With the departure of labour force from the rural areas to urban areas and other economic activities it becomes increasingly urgent to modernize the farming sector. Promoting farming as a business has the potential to uplift rural areas further and increase the contribution of agriculture to the national economy. Improved connectivity to potential demand and markets, investment in agriculture to increase labour productivity and diversify production, reduction of wasteful use of resources and adding value to agricultural processes via processing and improved handling are all components of the modernization process. Over the last decades it has become increasingly clear that farming for a market cannot be promoted by stimulating the supply side only. Modern commercial farming is part of a total system which gets its information from the demand side of the economy and leads this to the supply side where it sets the rules and regulations for participation of the farmers. This system operates in a regulatory environment set by policies and strategies of local and international governments and is supported by financial and non-financial services. Traditionally these systems operated mostly as supply chains where various private sector stakeholders were not involved to a large extend in encouraging the value produced in the system. However, over the last decades in more and more countries (and also in Sri Lanka) systems are evolving in which all stakeholders co-operate closely together to generate the highest possible value in the chain. Such chains are identified as value chains. For example, supermarket chains in Sri Lanka have been establishing direct supply lines with specific contracting agreements for fresh vegetables and aquaculture products deliveries and also major private companies have established contract and out grower schemes. This report provides an analysis of the aquaculture, particularly the black tiger shrimps and ornamental fish sector (as an example the Guppy fish) value chain in Sri Lanka, using to some extent the evidence-based, largely quantitative, toolkit developed/ compiled by the Directorate- General for International Cooperation and Development (DG DEVCO) within the project “Value Chain Analysis for Development” (VCA4D). This diagnosis of the aquaculture value chain is intended to support the European Commission and the Government of Sri Lanka in structuring their policy dialogue around the strategic issues that presently hinder the sustainable development and growth of the aquaculture value chain in the country. This aims at developing a resilient, competitive, commercially viable and environmentally sustainable aquaculture sector by addressing constraints and opportunities in aquaculture in Sri Lanka. The ultimate goal is to increase food security and improve nutrition and increase the value added of the aquaculture value chain. According to the approved Action
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Document, the aquaculture component will support the development and scaling up of successful pro-poor aquaculture systems, as well as the development and dissemination of more sustainable and efficient practices in the commercial sector This study was conducted over a period of less than three weeks, from 14 April to 1 May 2019 by 3 experts (2 agriculture economists and one food processing technologist) from the TAMAP project.
2 . 3 Value chain and VCA4D methodology
2 . 3 . 1 What are value chains?
Value Chains are interactive systems with products, money and information flowing through them, all reliant on relationships. The success of a value chain depends on effective flow and use of information along the entire chain from the market via traders and retailers and processors to farmers and agro-input suppliers. The flow depends on trust and commitment between trading partners. The success of the chain depends on understanding market opportunities and the whole chain rather than looking at its own part of the chain in isolation. In a successful value chain, each stakeholder knows the whole chain and understands benefits from chain-wide interdependence in the flow of products and money. Every stakeholder in the chain cooperates and works together to supply the same market opportunity and avoid competing only on price. The value created in the chain increases through gains in efficiency and quality. Relations are between stakeholders in a chain are stable and strong. Conducting such a collaborative action to avoid price competition and focus on efficiency gains and produce quality only makes commercial sense in case market information shows that reference products in local and export markets generate considerable higher value than the standard products of the supply chain of a sub-sector. This is exclusively the case for demand/markets catering for the middle- and high-income groups (tourist hotels and restaurants, supermarkets and specialty shops and export production. These markets are the target for value chain development approaches. A large amount of knowledge and methodologies have been developed related to value chain development since Michael Porter introduced the concept in his book Competitive Advantage in 1985.
2 . 3 . 2 VCA4D methodology
The VCA4D project is part of the European Union’s “Inclusive and Sustainable Value Chains and Food Fortification” Programme. The VCA4D methodology aims to provide evidence, supported by a list of indicators measured quantitatively or based on expert assessments that together provide an answer to four framing questions: 1. What is the contribution of the VC to economic growth? 2. Is this economic growth inclusive? 3. Is the VC socially sustainable?
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4. Is the VC environmentally sustainable? The analytical process has four components: Functional analysis: provides a general mapping and description of the main actors, activities, and operations in the chain, an overview of the products and product flows, the major production systems, a description of the main governance mechanisms in the chain, and a short description of (known) constraints. The functional analysis forms the basis for the analyses in the other three components. The analysis is mainly based on secondary data, and key informant interviews with both value chain actors and key experts.
Figure 1: Scope of the functional, economic, social and environmental analysis
Source: Aquaculture value chain analysis in Cambodia, VCA4D project, August 2018
Economic analysis: firstly consists of a financial analysis of each actor type (financial accounts, return on investment), as well as an assessment of the consolidated value chain (total value of production, global operating accounts). Secondly, it assesses the economic performance (contribution to economic growth in terms of direct and indirect value added generated, and the sustainability/viability for the national economy (domestic cost ratio, Policy analysis matrix Data is derived from secondary data, key informant interviews, and structured questionnaires.7
7 The economic analysis in the VCA4D methodology applies to a large extent the economic effects analysis which is a tool often used in financial and economic analysis. It addresses inclusiveness of growth by examining income distribution (business income, wages), and employment creation and distribution. In the economic effects analysis, the key is to strike the right balance between providing sufficient, robust, and reliable quantitative information for decision making, and keeping data collection efforts to a manageable limit. It has to be noted that given the limited time available for the shrimps and ornamental fish value chain study, an economic effects analysis was not conducted since this would have required the availability of social accounting matrices and economic input and output tables and at least 3 additional months.
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The social analysis explores whether the aquaculture value chain is socially sustainable. It also contributes to discussion on whether potential economic growth in the value chain can be socially inclusive. The social analysis draws on multiple information sources, including secondary data and field data from aquaculture producers at different scales, hatchery owners, processors, input suppliers, traders, exporters etc., and other government and non- government stakeholders. The environmental analysis evaluates the environmental sustainability of the value chain. The process of the VCA4D methodology for aquaculture in Sri Lanka is outlined in Figure 1.
2 . 4 Data collection
2 . 4 . 1 Secondary data
Interestingly, a lot of information from scientific sources (articles in international journals) and statistics from international organisations related to Sri Lanka are quite outdated and refer mostly to the time before end of the civil war. Nonetheless, the study team still obtained relatively latest information from GoSL sources (reports and statistics) and from trade related websites such as IndexMundi or Uncomtrade.
2 . 4 . 2 Primary data
Primary data was collected through key informant interviews, structured questionnaires and focus group discussions with shrimp and ornamental fish farmers (small, medium and large), traders, exporters and processors in the areas of Puttalam, Negombo as well as Colombo town and outskirts. Batticaloa was also envisaged to be visited, but due to the bomb blasts on Easter Sunday and the subsequent curfew and emergency situation it was not advised to undertake major travelling. Furthermore, due to these events, also a number of exporters and processors were not available for site visits. It should be noted that several fish farmers and exporters prior to the incidence were not willing to be interviewed. In the first instance, they agreed on meetings and appointments were made, however one day before the planned interviews many of them pulled out giving some doubtful excuses. The study team is aware that the data collected is very sensitive and given the prevailing challenges the sector is facing, many of the entrepreneurs are reluctant to expose information which could generate competitive advantages of potential competitors.
2 . 4 . 3 Justification of selected value chains
In the course of this report more details on the justification why aquaculture and why shrimps and ornamental fish have been selected for a detailed value chain assessment. However, in order to understand the report, a brief summary is presented on the justification.
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2.4.3.1 Why Aquaculture?
According to the National Ocean Service of the US National Oceanic and Atmospheric Administration, the term aquaculture broadly refers to the cultivation of aquatic organisms in controlled aquatic environments for any commercial, recreational or public purpose. The breeding, rearing and harvesting of plants and animals takes place in all types of water environments including ponds, rivers, lakes, the ocean and man-made “closed” systems on land. Aquaculture serves many purposes, including: • Food production for human consumption; • Rebuilding of populations of threatened and endangered species; • Habitat restoration; • Wild stock enhancement; • Production of baitfish; and • Fish culture for zoos and aquariums. It is one of the fastest growing forms of food production in the world. Because harvest from many wild fisheries has peaked globally, aquaculture is widely recognized as an effective way to meet the seafood demands of a growing population. Using aquaculture techniques and technologies, researchers and the aquaculture industry are “farming” all types of freshwater and marine species of fish and shellfish: • Marine aquaculture refers specifically to the culturing of oceanic species (as opposed to freshwater). Examples of marine aquaculture production include oysters, clams, mussels, shrimp, salmon and algae. Marine aquaculture is just 20 percent of U.S. production, consisting mostly of shellfish (e.g., oysters, clams and mussels). • Freshwater aquaculture includes trout, catfish and tilapia. About 70 percent of aquaculture in the United States is freshwater farming of catfish and trout. The global seafood consumption with particular reference to farm raised production compared to wild catches is illustrated in Figure 2. Figure 2: Global seafood consumption – now and future
The potential for future marine fishing is limited among others due to overfishing, environmental pollution including excessive plastic waste and climate change and its long-term negative effects. It is anticipated that by 2030 approximately 62 % of the global seafood consumption will originate from farm raised (aquaculture) production with estimated 93.6 million metric tons. Currently, the aquaculture market is worth about US $ 120 billion per year at the farm level producing 60 million tons of seafood.
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Figure 3: Worldwide aquaculture capture fish production
At Current Consumption Rates, an additional 23 Million tons of seafood per year will be needed worldwide by 2030. Sri Lankan aquaculture currently produces annually 80,000 tons.8 Figure 3 confirms the increasing growth rate for aquaculture production compared to marine fish production which is somehow stagnating. Source: Presentation made by NAQDA Centre Inginiyagala in August 2018 to TAMAP field mission
Given the large potential Sri Lanka has to further develop the aquaculture sector, this sector has been selected for the value chain analysis.
2.4.3.2 Why shrimps, prawns and ornamental fish?
From the various tables and figures in the next sections it can be ascertained that the production of shrimps has recorded significant growth rates and the environment in Sri Lanka offers potential for further growth. In particular, the P. monodon (black tiger shrimp) and the P. vannamei production can be expanded.
Figure 4: Selected shrimp cultures for value chain analysis
P.monodon (black tiger shrimp) P.vannamei
Similar to the production of shrimps, Sri Lanka offers a good environment in terms of climate, water quality and knowhow for the production of ornamental fish. The following sections give evidence on our selection.
8 Global Trends in Aquaculture, presentation made by King Aqua Services
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Figure 5: Examples of ornamental fish selected for the value chain analysis
Guppy See horse
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3 INLAND FISHERIES AND AQUACULTURE SECTOR
3 . 1 Sector Overview i n S r i L a n k a
Sri Lanka’s fisheries industry can be divided into the following subsectors: coastal, offshore/deep sea, aquaculture and inland fisheries. Aquaculture is defined by the Food and Agriculture Organisation (FAO) as “farming of aquatic organisms, including fish, molluscs, crustaceans and aquatic plants. Farming implies some form of intervention in the rearing process to enhance production, such as regular stocking, feeding, protection from predators, etc”.9 The country’s aquaculture subsector is small with a focus on shrimp, molluscks, commercial growing of Indo-Pacific swamp crab, aquatic plants and ornamental fish.10 Sri Lanka has extensive freshwater and brackish water resources that can sustain viable aquaculture activities. The country has over 116 lagoons and estuaries along its coastline.11 The total extent of lagoons and estuaries has been estimated to be 121,000 hectare (ha).12 The high density of inland freshwater bodies including perennial reservoirs, seasonal village tanks and flood plains provides sufficient basis for developing the reservoir fisheries sector as a major industry.13 The country has around 260,000 ha of inland water resources, which comprises of large irrigation reservoirs (70,850), medium irrigation reservoirs (17,004), minor irrigation reservoirs (39,271), seasonal village tanks (100,000) flood lakes (41,049), upland reservoirs/estate tanks (8,097) and Mahaweli river basins (22,670).14 Despite its large fresh and brackish water resources, aquaculture has not been a traditional industry in Sri Lanka. The country did not embark upon aquaculture enterprises until the 1980s.15 According to the Food and Agricultural Organization (FAO), about 50% of the world’s seafood now comes from aquaculture, and yet 90% of Sri Lanka’s seafood is still wild-caught. In 2017, the contribution of marine and freshwater fishing and aquaculture to the country’s Gross Domestic Production (GDP) was 1.3%, while the contribution of fresh water fishing and fresh water aquaculture to the country’s Agriculture GDP was 18.5 % whereas the latter amounted to 20.7 % in 2012.16 Table 1 illustrates an overview of the various sector GDPs at
9 Peter Edwards and Harvey Demaine. Rural Aquaculture: Overview and Framework for Country Reviews, 1998, available at: http://www.fao.org/docrep/003/x6941e/x6941e04.htm, [accessed on: April 2018]. 10 K.H.D.T Kasagala, Aquaculture for Rural Development and Poverty Reduction in Sri Lanka: An Assessment of Potentials and Constraints, 2008, available at: http://dl.nsf.ac.lk/ohs/harti/22235.pdf, [accessed on: April 2018]. 11 Department of Fisheries and Aquatic Resources, Brackish Water Fisheries, available at: http://fisheriesdept.gov.lk/v3/en_US/lagoon-management/, [accessed on: April 2018]. 12 Asbjørn Drengstig, Aquaculture in Sri Lanka - History, current status and future potential, August 2013, available at: https://www.norwegian-lobster-farm.com/wp-content/uploads/2013/08/AQUACULTURE-IN-SRI- LANKA1.pdf, [accessed on: April 2018]. 13 K.H.D.T Kasagala, Aquaculture for Rural Development and Poverty Reduction in Sri Lanka: An Assessment of Potentials and Constraints, 2008, available at: http://dl.nsf.ac.lk/ohs/harti/22235.pdf, [accessed on: April 2018]. 14 Ministry of Fisheries and Aquatic Resources, Ten Year Development Policy Framework of the Fisheries and Aquatic Resources Sector - 2007 – 2016, March 2007, available at: http://www.cepa.lk/content_images/publications/documents/121-S-Min.of%20Fisheries- Ten%20year%20development%20policy.pdf, [accessed on: April 2018]. 15 K.H.D.T Kasagala, Aquaculture for Rural Development and Poverty Reduction in Sri Lanka: An Assessment of Potentials and Constraints, 2008, available at: http://dl.nsf.ac.lk/ohs/harti/22235.pdf, [accessed on: April 2018]. 16 Department of Census and Statistics, Ministry of National Policies and Economic Affairs, National Accounts Estimates of Sri Lanka, 15 March 2018, available at:
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constant (2010) prices. It can be observed that both, in absolute and relative figures compared to the overall and agriculture GDP, the marine and freshwater subsectors remain more or less on the same level. Table 1: GDP of Sri Lanka according to various (sub) sectors at constant (2010) prices in billion LKR
Economy / Sector Year 2012 2013 2014 2015 2016 2017 Overall GDP 7,588.5 7,846.2 8,235.4 8,647.8 9,034.3 9,333.2 Agriculture GDP 529.4 611.7 639.7 669.7 644.3 639.3 Agriculture GDP / Overall GDP 7.0% 7.8% 7.8% 7.7% 7.1% 6.8% Marine: Fishing & Aquaculture 97.1 103.9 105.8 104.4 105.1 103.0 Freshwater: Fishing & Aquaculture 12.6 12.4 14.1 12.5 13.7 15.2 Marine & Freshwater / Overall GDP 1.4% 1.5% 1.5% 1.4% 1.3% 1.3% Marine & Freshwater / Agriculture GDP 20.7% 19.0% 18.7% 17.5% 18.4% 18.5% Marine: Fishing & Aquaculture / Agr. GDP 18.3% 17.0% 16.5% 15.6% 16.3% 16.1% Freshwater: Fishing & Aquaculture / Agr. GDP 2.4% 2.0% 2.2% 1.9% 2.1% 2.4%
Source: Own calculations based on Central Bank of Sri Lanka, Economic and Social Statistics of Sri Lanka 2018, July 2018
3 . 1 . 1 T o t a l f ish production in Sri Lanka
The marine fishing sector in Sri Lanka is dominating in terms of production the land fisheries sector. Table 2 illustrates the total fish production of Sri Lanka from 2015 to 2018 in metric tons. From this it can be seen that the share of inland fisheries production is steadily increasing, albeit on a relatively level, currently at 16.6 %.
Table 2: Total fish production in Sri Lanka from 2015-2018 in metric tons
Fishing Sub-sector 2015 2016 2017 2018 1 Off shore/Deep Sea 183,870 182,830 189,720 190,350 2 Coastal 269,020 274,160 259,720 249,020 Total Marine 452,890 456,990 449,440 439,370 % marine of total 87.1% 86.1% 84.6% 83.4% 3 Inland Capture 57,060 58,410 68,500 71,020 4 Inland Culture 3,150 9,490 8,740 8,490 5 Shrimp Farms 7,090 6,030 4,630 8,180 Total Inland 67,300 73,930 81,870 87,690 % inland of total 12.9% 13.9% 15.4% 16.6% Sri Lanka 520,190 530,920 531,310 527,060
Source: Own calculations based on data from Statistical Unit of MFADRD April 2019
http://www.statistics.gov.lk/national_accounts/dcsna_r2/reports/Annual_2017_(2018_03_20)_English.pdf, [accessed on: April 2018].
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Figure 6: Comparison of marine fish and inland & aquaculture fish production in Sri Lanka from 2004 - 2017
Fish production in Sri Lanka in metric tons 600,000
500,000
400,000
300,000
200,000
100,000
0 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Marine fish Inland & aquaculture fish Total
Source: Own calculations based on data from Statistical Unit of MFADRD April 2019
Figure 6 implies that whereas inland & aquaculture fish production steadily increases, albeit on a low level, marine fish production is characterised by steeper increases, however also steeper declines. On average, the inland & aquaculture fish production remains with a share of about 15 – 16 % of the marine fish production.
3 . 1 . 2 Inland and aquaculture fish production in Sri L a n k a
Inland and aquaculture fish production grew at an average rate of 7% during 2008-2017. Increased release of fingerlings to inland reservoirs and improvements in the aquaculture subsector have positively influenced the growth in inland and aquaculture fish production.17 In 2017, total inland and aquaculture fish production was 82,540 Mt, which accounted for 16% of the country’s total fish production (see Figure 7).18
17 Socio –Economic and Marketing Research Division - National Aquatic Resources Research and Development Agency (NARA), Fisheries Industry Outlook- 2016, available at: http://www.nara.ac.lk/wp- content/uploads/2017/09/2016-Fisheries-Outlook-2018.01.18-new.pdf, [accessed on: April 2018].
18 National Aquaculture Development Authority of Sri Lanka, Sri Lankas Annual fish production by different sub sectors, available at: http://www.naqda.gov.lk/statistics/Sri-Lankas-Annual-fish-production-by-different-sub- sectors/, [accessed on: April 2018
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Figure 7: Aquaculture and inland fish production, MT (1999-2017)
Production MT % of total fish production 90,000 25 80,000 70,000 20 60,000 15 50,000 40,000 10 30,000 20,000 5 10,000
0 0
2000 2013 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2014 2015 2016 2017 1999 Source: Annual fish production by different sub-sectors, National Aquaculture Development Authority of Sri Lanka
Fresh water fish - The inland fish production comes primarily from the country’s numerous reservoirs.19 The commercial-scale inland capture fisheries come from major irrigation and hydroelectric reservoirs (> 750 ha). Small-scale fisheries exist in the medium-scale reservoirs (250–750 ha). Anuradhapura, Puttalam and Monaragala districts are dominant inland fish producing areas. 20 The introduction of culture-based fisheries (CBF) in minor perennial reservoirs21 and seasonal reservoirs22 is a recent development in Sri Lanka. Hatchery-reared fish are released into these reservoirs not primarily managed for fish production and are recaptured upon reaching a desirable size.23 A study done in 201524 reveals that the introduction of CBF resulted in an increase of total average annual fish production in a medium perennial reservoir in Ampara from 5.6 to 118.1 tonnes. Crab fishery - This involves capturing of just molted crabs (water/mud crabs) from the wild and fattening them under captivity with a variety of food such as fish offal, shark heads, cockles
19 Upali S. Amarasinghe. 2013. Fisheries resources in alleviation of hunger and malnutrition in Sri Lanka - accomplishment and challenges, Sri Lanka Journal of Aquatic Sciences 18: 1-15. 20 Socio –Economic and Marketing Research Division - National Aquatic Resources Research and Development Agency (NARA), Fisheries Industry Outlook- 2015, available at: http://www.nara.ac.lk/wp- content/uploads/2017/09/2015-Fisheries-Outlook-1.pdf, [accessed on: April 2018].
21 The reservoirs which retain water throughout the year are called “minor perennial reservoirs”, size less than 60 ha. 22 Reservoirs which retain water for 7-9 months each year are locally known as “seasonal reservoirs”. 23 Upali S. Amarasinghe. 2013. Fisheries resources in alleviation of hunger and malnutrition in Sri Lanka - accomplishment and challenges, Sri Lanka Journal of Aquatic Sciences 18: 1-15. 24 K.B.Chandrani Pushpalatha, Jayantha Chandrasoma and W.M.J. Rohitha Fernando 2015. Impact of introduction of culture-based fisheries on fish production and socio-economic conditions of fishers in Ampara wewa, a medium perennial reservoir, Sri Lanka Journal of Aquatic Sciences 20 (2): 1-8.
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etc. for 2 -3 weeks before harvesting for sale. The harvest is sold to the local market and for export to Southeast Asian and Pacific countries. The most popular areas for crab fishery in Sri Lanka are Negombo, Chilaw, Batticaloa, Koggala, Tangalle, Dickwella and Trincomalee.25 This industry is popular among small-scale fish farmers due to the simple technology involved, low investment required and high profit margins. According to a study done in 2011 in Koggala, about 80% of the crab collectors harvested less than 40kg/ month and only 7% of respondents harvested more than 200kg/ month.26 Shrimp farming – Shrimp farming completely dominates brackish water aquaculture in Sri Lanka, and farming is a significant component of overall shrimp production. Out of the total shrimp production (27,180 Mt) in the country in 2015, the aquaculture subsector contributed to 26% (7090 Mt).27 The political unrest and insurrection during the late 1980’s and early 1990’s stunted the shrimp industry’s growth. From 1992 to 1996, the industry witnessed rapid but uncontrolled growth which resulted in harvests up to 8,000-9,000 kg/ha per year in earthen ponds. This growth however could not be sustained due to the lack of coastal zone management and infrastructure development.28 Poor coastal management also brought on white spot syndrome virus, a virulent disease that can kill all the prawns in a pond in under a week.29 A number of disease outbreaks and environmental problems battered the industry significantly. In 2005, the industry started developing closed and semi-closed production systems as well as fully re-circulated systems for shrimp and finfish30 aquaculture. At present, the country has limited but stable shrimp production and a growing aquaculture production of finfish. The success of the trial projects in cage farming has ignited the interest in installation of larger cages with circumference up to 60m in the North-East areas of the island. The land-based farming sector also has caught the attention of local entrepreneurs. Traditional earthen pond farming of shrimp and finfish is seeing steady growth, and farmers are now adhering to a strict coastal zone management plan regulating the time for stocking and harvesting in different farming regions.31 Shrimp farming has expanded in Sri Lanka due to high demand both domestic and foreign and profitability.
25 Sandika A.L. and Hirimuthugoda N.Y. 2011. Socio-Economic and Livelihood Related Issues of Crab Collectors in Koggala Lagoon in Galle Sri Lanka, Tropical Agricultural Research & Extension 14(2), available at: http://www.agri.ruh.ac.lk/tare/pdf/v_14.2/(1)AEC%2011%2014.pdf, [accessed on: April 2018]. 26 Ibid. 27 National Aquaculture Development Authority of Sri Lanka, Production of Shrimp, available at: http://www.naqda.gov.lk/statistics/Production-of-Shrimp/, [accessed on: April 2018]. 28 Sri Lanka Export Development Board, Shrimp Farming in Sri Lanka, 22 December 2017, available at: http://www.srilankabusiness.com/blog/developing-shrimp-farming-in-Sri-Lanka.html, [accessed on: April 2018]. 29 Mark Huxham, How shrimp farming wreaked havoc on Sri Lankas coasts, 21 July 2015, available at: http://theconversation.com/how-shrimp-farming-wreaked-havoc-on-sri-lankas-coasts-44933, [accessed on: April 2018]. 30 Finfish refer to Vertebrate and cartilanginous fishery species, not including crustaceans, cephalopds, or other mollusks. - Source: U.S. Department of Commerce – National Oceanic and Atmospheric Administration, NOAA Fisheries Glossary, June 2006, available at: https://www.st.nmfs.noaa.gov/st4/documents/FishGlossary.pdf, [accessed on: April 2018]. 31 Sri Lanka Export Development Board, Shrimp Farming in Sri Lanka, 22 December 2017, available at: http://www.srilankabusiness.com/blog/developing-shrimp-farming-in-Sri-Lanka.html, [accessed on: April 2018].
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3 . 1 . 3 M a j o r s p e c i e s in Sri Lanka
Freshwater species – Sri Lanka has 80 mainly riverine and marsh dwelling indigenous fish species. Hirikanaya (Labeo dussumeiri) and Mas petiya {Puntiussarana} are primarily considered indigenous food-fish species. The contribution of indigenous fish species to the inland fish production remains insignificant. Due to the absence of fast-growing fish species in Sri Lankan indigenous fish fauna, exotic species are used for inland fisheries enhancement strategies.32
Table 3: Inland fish catch by major species in metric tons and growth rate
YEAR Growth rate 2012 2013 2014 2015 2016 2017 Species 2012-2017 Tilapia 39,590 39,070 46,610 40,504 43,836 50,064 26.46% Carps/Mirigal 3,570 3,450 3,920 2,847 3,363 4,250 19.05% Catla/Rohu 12,460 8,980 11,020 9,117 7,772 8,435 -32.30% Hiri Kanaya 670 590 580 358 230 330 -50.75% Lula 1,770 2,040 2,230 1,582 1,849 2,765 56.21% Cultured Shrimps 3,310 4,430 5,040 6,836 6,028 4,630 39.88% Freshwater prawns 290 540 460 374 705 890 206.90% Cultured Milk fish & Seabass130 90 70 78 174 290 123.08% Other wild fish 7,160 7,720 5,820 5,604 9,973 10,215 42.67% Total 68,950 66,910 75,750 67,300 73,930 81,869 18.74%
Source: Own calculations based on Fisheries Statistics 2018, Ministry of Fisheries and Aquatic Resources & Rural Economy, NAQDA. These figures do not contain ornamental fish
Brackish water species - Despite the availability of 112 edible brackish water species, coastal aquaculture is dominated by marine shrimp.33 The major species cultivated is Penaeus monodon. It is estimated that about 11 000 ha are available for land-based coastal aquaculture other than shrimp, including 10 000 ha for milkfish culture, 1 000 ha for Artemia culture and 50 ha for crab. Although there is potential for cultivating brackish-water species such as milkfish (Chanos chanos), moonies (Monodactylus spp.), seabass (Latus caicarfer), grouper (Epinephelus spp.), crab (Scylla serrata), mussel (Perna spp.) and oyster (Cassostrea spp.), commercial-scale culture of these species has yet to develop.34 Brown mussel [Perna perna), green mussel (Perna viridis), Crassostrea madrasensis and Saccostrea cucullata are the edible mollusk species present in Sri Lanka that could be cultured.35
32 Upali S. Amarasinghe. 2013. Fisheries resources in alleviation of hunger and malnutrition in Sri Lanka - accomplishment and challenges, Sri Lanka Journal of Aquatic Sciences 18: 1-15. 33 Food and Agriculture Organization of the United Nations - Fisheries and Aquaculture Department, National Aquaculture Sector Overview - Sri Lanka, 01 January 2004, available at: http://www.fao.org/fishery/countrysector/naso_sri-lanka/en, [accessed on: April 2018]. 34 Food and Agriculture Organization of the United Nations, Sri Lanka country profile, January 2006, available at: http://www.fao.org/fi/oldsite/FCP/en/LKA/profile.htm, [accessed on: April 2018]. 35 Asbjørn Drengstig, Aquaculture in Sri Lanka - History, current status and future potential, August 2013, available at: https://www.norwegian-lobster-farm.com/wp-content/uploads/2013/08/AQUACULTURE-IN-SRI- LANKA1.pdf, [accessed on: April 2018].
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Table 3 indicates that the total quantity of inland fish from 2012 to 2018 grew by 18.7 % with the highest grow rate for freshwater prawns, cultured milk fish and Lula. It should be noted that 2017 was a poor year for cultured shrimps and the growth rate from 2012 to 2016 was 83 %. Ornamental/Aquarium Fish - Marine fish and invertebrates are collected by experienced scuba divers from the waters around the island while freshwater species are bred in captivity by a large number of small and medium scale producers. Freshwater aquarium fish comprise the more colorful and striking species of guppies, swordtails, platys, barbs, tetras, angels, gouramies, and catfish. Out of these freshwater species exported from Sri Lanka, about 60- 70% consists of famous fancy guppies.36 Freshwater prawn farming – With the opening up of the new Freshwater Prawn Hatchery, Kahandamodara in the Hambantota District in August 2016, the prawn post larvae production was expected to increase from the 20 million production recorded at that time up to 40 million.37 In 2015, the total production of freshwater prawn was 375 metric tons with 144 metric tons of the total exported. Value added products – As most of the fish (both fresh and marine) are sold as raw fish in the country, there is hardly any value addition. A small proportion is dried, salted or smoked. Dried freshwater fish has a good demand. 38
3 . 1 . 4 E x p o r t s and imports of f ish and fish products from and to Sri Lanka
Figure 8 presents an overview of imports and exports of fish and fishery products to and from Sri Lanka in terms of quantity and value. It can be seen that in terms of quantity, imports are heavily outweighing exports whereas this looks entirely different when considering the values. Apart from 2015 and 2016, the value of exports significantly exceeded the value of imports. Figure 8: Imports and exports of fish & fishery products to and from Sri Lanka in metric tons and value in million LKR
Imports and exports of fish & fish products to Value of Imports and exports of fish & fish products in and from Sri Lanka in metric tons million LKR 45,000 140,000 40,000 120,000 35,000 100,000 30,000 80,000 25,000 60,000 20,000 15,000 40,000 10,000 20,000 5,000 0 0 2000 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2000 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Exports of fish & products Import of fish & products Exports of fish & products Import of fish & products
Source: Fisheries Statistics 2018, Ministry of Fisheries and Aquatic Resources & Rural Economy, NAQDA.
36 Sri Lanka Export Development Board, Aquarium Fish, available at: http://www.srilankabusiness.com/aquarium-fish/, [accessed on: April 2018]. 37 National Aquaculture Development Authority of Sri Lanka, Opening of the New Freshwater Prawn Hatchery, Kahandamodara, 2016, available at: http://www.naqda.gov.lk/news/Opening-of-the-New-Freshwater-Prawn- Hatchery,-Kahandamodara, [accessed on: April 2018]. 38 K.H.D.T Kasagala, Aquaculture for Rural Development and Poverty Reduction in Sri Lanka: An Assessment of Potentials and Constraints, 2008, available at: http://dl.nsf.ac.lk/ohs/harti/22235.pdf, [accessed on: April 2018].
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This might be attributed to the fact that bulky low value commodities are usually imported such as fish meal. Figure 9 focusing on time series data of fish and fisheries products from Sri Lanka according to various categories does not show any clear trend. The export market seems to be struck by several factors such as prices, erratic harvests (catches) and diseases.
Figure 9: Export value of fish products from Sri Lanka in US$ thousands
150,000
100,000
50,000
0 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Frozen fish (Code: 0303) Aquatic invertebrates (Code 0308) Fish fillets & other fish meat (Code:0304) Crustaceans (Code: 0306) Fish fresh or chilled (Code: 0302) Fish for human consumption (Code: 0305) Molluscs for human consumption (Code: 0307) Live fish (Code: 0301)
Source: ICT Trademap: https://www.trademap.org/Bilateral.aspx?nvpm=1%7c144%7c%7c000%7c%7c03%7c%7c%7c4%7c1%7c2%7c2%7 c1%7c1%7c1%7c1%7c1
3 . 1 . 5 Production & exports of shrimps and ornamental fish from Sri L a n k a
3.1.5.1 Shrimps
Shrimp farming was begun on the eastern coast in the Batticaloa District in the late 1970s but was abandoned due to civil unrest. The industry was revived during the early 1980s along the coastal border of the Puttalam district of the North Western region of Sri Lanka. The industry rapidly expanded in the Puttalam district for three major reasons. First, there were abundant natural resources such as coastal lagoons, mangrove swamps, tidal flats and, estuaries well- suited to shrimp farming. Second, this region had a good road network and easy access to the Katunayake international airport and Colombo harbour which allowed for quick access to infrastructure needs for the export of fresh product. Third, industry development in the Puttalam district coincided with a heavy demand for shrimp in international markets. In 2018 shrimps farming was carried out in a total of 3,710 ponds covering a net area of 1,800 ha. A total of 1,096 shrimps farmers were counted and approximately 99 % of the production was P. Monodon (black tiger shrimps).
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Figure 10 implies that shrimps are still originating from wild captures. In 2017, for instance, 79 % of the shrimps produced in Sri Lanka came from wild capture. The same figures also illustrate that the vast majority of shrimps produced in Sri Lanka is consumed on the local market. In 2017, only about 8.2 % of the shrimps were exported. It has to be ascertained that in former time, at the beginning of 2000, the percentage of shrimps exported was much higher. In 2000 the percentage was 40.8 % and in 2001 it was 36.2 %. In the next sections of this study reasons for this development will be explained.
Figure 10: Shrimps produced in Sri Lanka and exported in metric tons
Production of shrimps in Sri Lanka in metric tons Shrimps produced in Sri Lanka and exported in 35,000 metric tons 30,000 40,000 35,000 25,000 30,000 20,000 25,000 15,000 20,000 15,000 10,000 10,000 5,000 5,000
0 0
1990 1999 2000 2002 2003 2005 2006 2008 2009 2012 2015 2016 1995 2001 2004 2007 2010 2011 2013 2014 2017
1990 1995 2000 2002 2004 2006 2008 2009 2011 2013 2015 2017 1999 2001 2003 2005 2007 2010 2012 2014 2016
Shrimps from aquaculture Shrimps from wild capture Total shrimps production Exported shrimps Source: Own calculations based on Fisheries Statistics 2018, Ministry of Fisheries and Aquatic Resources & Rural Economy, NAQDA.
3.1.5.2 Ornamental fish
The ornamental fish industry in Sri Lanka has a long history, which began with small-scale outlets in some houses within the cities. In the early 1930’s there were several small-scale importers, breeders and hobbyists. The aquarium fish industry in Sri Lanka initiated around the commercial capital, Colombo, as a result of the establishment of a zoological garden in Dehiwala and the first public aquarium was established in 1952 in Colombo. The industry was commercialized by a few entrepreneurs about 50 years ago and has now developed into a thriving industry with an export market, affording profit and employment to many people (Kuruppu, 1998). As a result of overcrowding, high labour costs and lack of land for fish outgrowing facilities, the large-scale growers started to move out to rural areas of the dry zone within the country. Presently, the ornamental fish outgrowing systems are distributed in the northcentral, north-western and central provinces of Sri Lanka.39 Currently, there are 350 registered ornamental fish farmers. 3,000 unregistered ornamental fish farmers and 40 official exporting companies in Sri Lanka, most of them are also producers. Sri Lanka exports marine, freshwater, brackish water fish species and marine invertebrates. Experienced scuba divers collect marine fish and invertebrates from the waters around the island; while a large number of small and medium scale producers, who are dedicated to maintain high quality standards, breeds freshwater species in captivity. Freshwater aquarium fish comprise of more colourful and striking species of Guppies, Swordtails, Platys Barbs Tetras, Angels, Gouramis, and Catfishes etc. Out of the freshwater species exported from Sri
39 R.G.S. Wijesekara and A. YAkupitiyage, NAQDA, Ornamental fish industry in Sri Lanka: present status and future trends, paper presented at Agricultural and Aquatic System Management Program, Asian Institute of Technology, Bangkok, 2000.
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Lanka, about 60-70% consists of Guppies. These are highly recognised in the international market for its strength and high diversity when compared to other countries.40 Whereas Sri Lanka’s share in world trade (exports) for most of the fish and fisheries products are negligible with less than 0.4 % share, Sri Lanka’s share in world’s exports of ornamental fish (freshwater and seawater) has been estimated at 3.6 % (ICT Trademap statistics). The key export markets for Sri Lankan Aquarium fish include the USA, Japan, the United Kingdom, Germany and France. There are also emerging markets such as Qatar and Canada, demonstrating high growth in demand for from Sri Lankan ornamental fish.
Figure 11: Export value of ornamental fish from Sri Lanka
Export value of live ornamental fish from Sri Lanka in thousand US $ 35,000
30,000
25,000
20,000
15,000
10,000
5,000
0 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Live ornamental fish excl. freshwater Live remaining ornamental fish Total
Source: ICT Trademap: https://www.trademap.org/Bilateral.aspx?nvpm=1%7c144%7c%7c000%7c%7c03%7c%7c%7c4%7c1%7c2%7c2%7 c1%7c1%7c1%7c1%7c1
3 . 2 G o v ernance and Institutional framework
3 . 2 . 1 Aquaculture policies and strategies
The Ministry of Agriculture, Rural Economic Affairs, Livestock Development and Fisheries & Aquatic Resource Development (former Ministry of Fisheries and Aquatic Resources Development and Rural Economy), updated the National Fisheries and Aquaculture Policy in 2018 and included five (5) thematic areas, i.e. marine fisheries, aquaculture and inland fisheries, consumers and markets, blue economy and other areas. Each policy would be implemented in accordance with a master plan that will be prepared with activities to be
40 Ornamental Fish from Sri Lanka, brochure developed by Sri Lanka Export Development Board.
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implemented and investments to be made for the period 2018-2025 for the realization of the envisaged objectives.41 With regard to aquaculture and inland fisheries, the policy emphasises on the following areas: • Sustainable management of resources; • Strengthening of Governance; and • Increasing fish production Prior to the development of the national fisheries policy, a Ten-Year Development Policy Framework of the Fisheries and Aquatic Resources Sector 2007–2016 was put in place with the following key strategies: ▪ increasing fish production in minor perennial reservoirs and seasonal tanks through CBF and ▪ increasing Indian carp production through stock enhancement programs in major and medium perennial reservoirs42. In order to support the fisheries sector the establishment of the National Aquaculture Development Authority of Sri Lanka (NAQDA) under a Parliamentary Act in 1998 strengthened the extension mechanism in the inland fisheries and aquaculture subsector.43
3 . 2 . 2 Institutions responsible for and supporting the s e c t o r
The key institutions related to the development and regulation of aquaculture under the Ministry of Fisheries and Aquatic Resources Development are the Department of Aquatic Resources, the National Aquatic Resources Research and Development Agency (NARA) and the National Aquaculture Development Authority (NAQDA). NARA is the principal national research institution mandated to carry out research and development activities in the field of aquatic resources while NAQDA is entrusted with the activities of developing commercial aquaculture and extension activities. The National Institute of Fisheries and Nautical Engineering (NIFNE) provides education and training.44
3.2.2.1 Department of Fisheries and Aquatic Resources
Responsibility for the implementation of policies, laws, plans and programs is centralized around the ministry as well as departments and regional and local-level state organizations established under its auspices.45 The Quality Control Division of the ministry provides services
41 Ministry of Fisheries and Aquatic Resources Development and Rural Economy, National Fisheries and Aquaculture Policy in 2018
42 Ministry of Fisheries and Aquatic Resources, Ten Year Development Policy Framework of the Fisheries and Aquatic Resources Sector - 2007 – 2016, March 2007, available at: http://www.cepa.lk/content_images/publications/documents/121-S-Min.of%20Fisheries- Ten%20year%20development%20policy.pdf, [accessed on: April 2018]. 43 Upali S. Amarasinghe. 2013. Fisheries resources in alleviation of hunger and malnutrition in Sri Lanka - accomplishment and challenges, Sri Lanka Journal of Aquatic Sciences 18: 1-15. 44 K.H.D.T Kasagala, Aquaculture for Rural Development and Poverty Reduction in Sri Lanka: An Assessment of Potentials and Constraints, 2008, available at: http://dl.nsf.ac.lk/ohs/harti/22235.pdf, [accessed on: April 2018].
45 MFAR is organized under six divisions and it consists of two departments, five statutory bodies and a public company under its purview. These include the Department of Fisheries and Aquatic Resources (DFAR),
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such as supervision, factory approval, export certificates and awareness- raising programs on EU procedures for exporters, quality management techniques, and other relevant issues. The Department of Fisheries and Aquatic Resources (DFAR), operating under the Fisheries and Aquatic Resources Act No. 2 of 1996, is responsible for managing, regulating, conserving and developing fisheries and aquatic resources.
3.2.2.2 The National Aquatic Resources Research and Development (NARA)
NARA is primarily responsible for conducting research and establishing policies designed to improve and conserve fishery resources, in particular mapping resources to determine stock levels and rate of exploitation. NARA also provides laboratory facilities for quality control. District fishery offices under the ministry are responsible for local extension services, the registration of boats, the distribution of subsidies (fuel subsidy for small boat owners and a proposed price subsidy for buying boats), maintaining environmental standards and conflict resolution at the local level.
3.2.2.3 National Aquaculture Development Authority (NAQDA)
NAQDA is involved in the extension and development of aquaculture in marine and inland aquatic resources. It is mandated to develop freshwater, brackish water, coastal aquaculture and marine-culture operations to increase fish production and consumption, develop small, medium and large-scale private sector investment in aquaculture and creation of employment opportunities, promote the farming of high-valued species and optimum utilisation of aquatic resources, conserve and develop aquatic resources through environmentally friendly aquaculture programmes.
3.2.2.4 Sri Lanka Standard Institution (SLSI) and Export Development Board
Fish exports are regulated by the 1998 Fish Product (Export) Regulations to ensure that Sri Lankan exports meet specific international quality standards. Exporters have to obtain certificates of health and food safety and Hazard Analysis and Critical Control Points (HACCP), and obtain approval to export to the EU by the Ministry of Fisheries and Aquatic Resources. Approved laboratories in different institutions such as the Sri Lanka Standard Institution (SLSI), the Industrial Technology Institution (ITI) and NARA perform quality inspections and there are several approved private laboratories that also provide this service. These institutes are generally perceived as supportive and transparent given that the industry does not face significant difficulties or administrative obstacles in meeting export market quality and safety standards. The Export Development Board (EDB) is responsible for promoting fish and fish product exports and it also provides capital grants at concessionary interest rates to selected exporters to enable them to upgrade their processing units according to HACCP standards. As a result, most processing plants have the necessary equipment to meet these standards, but continue
Department of Coast Conservation (CCD), The National Aquatic Resource Research and Development Agency (NARA), Institute of Fisheries and Nautical Engineering (NIFNE), Ceylon Fishery Harbors Corporation (CFHC), Ceylon Fisheries Corporation (CFC) and Ceynor
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to operate below their potential capacity. Currently, 26 medium- and large-scale export companies are reported to have their own processing units compliant with EU standards.
3 . 2 . 3 Legal framework and acts
The Fisheries and Aquatic Resources Act No 2 of 1996 provides for the management, regulation, conservation and development of fisheries and aquatic resources in Sri Lanka. Certain zones are reserved for aquaculture, for which a license is required. The Aquaculture Management Regulation Act of 1996 covers the licensing procedure for pen culture cage culture, raft culture, seaweed culture, and ornamental fish culture and hatchery production. The Fisheries and Aquatic Resources (Amendment) Act of 2006 provides for licensing of aquaculture operations, appointment of licensing officers, license application procedures, duration and renewal of licenses, suspension or cancellation of licenses, and appeals and complaints against licensing officers and provisions to address aquaculture disputes. Pursuant to the Coast Conservation Act of 1981 (amended in 1988), no person can engage in any development activity (which includes aquaculture) within the coastal zone unless the Director General of Coast Conservation issues a permit. The Director General requires the applicant to submit an environmental impact assessment (EIA). Aquaculture farmers are required to obtain an environment protection license to discharge, deposit or emit wastes into the environment in keeping with standards established under the Act. The Act and the Regulations prescribe the licensing procedure, including renewal, suspension and cancellation of licenses. The Fisheries and Aquatic Resources Act No 2 of 1996 was amended several times:46 1. The Fisheries and Aquatic Resources (Amendment) Act, No. 4 of 2004 2. The Fisheries and Aquatic Resources (Amendment) Act, No. 22 of 2006 3. The Fisheries and Aquatic Resources (Amendment) Act, No. 35 of 2013 4. The Fisheries and Aquatic Resources (Amendment) Act, No. 2 of 2015 5. The Fisheries and Aquatic Resources (Amendment) Act, No. 2 of 2016)
DFAR collected in March 2016 the compendium of high seas fishing legislations in Sri Lanka based on the above Fisheries and Aquatic Resources Act, No. 2 OF 1996 including all above amendments (available on www.fisheriesdept.gov.lk) (54 pp)
3 . 2 . 4 Export and market requirements and licenses
Each exporter of aquaculture products and ornamental fish requires an export license which has to be yearly renewed. Furthermore, the exporter has to be registered with the Board of Investment and has to pay yearly fees, so-called Return of Economic Service Charges which amount to 1 % of the revenues irrespective whether profits or losses have occurred. The exporter also has to be registered with the Export Development Board and ahs to pay a once and off fee .
46 PR Consult; A Study on Sri Lanka’s readiness to attract investors in aquaculture with focus on marine aquaculture sector; study commissioned by NORAD in 2017.
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The Fisheries and Aquatic Resources (Amendment) Act of 2006 has provisions for new sections, viz licensing of aquaculture operations, appointment of licensing officers, license application procedures, duration and renewal of licenses, suspension or cancellation of licenses, and appeals and complaints against licensing officers. Section 45A deals with aquaculture disputes. Hazard Analysis Critical Control Point (HACCP) certification is a requirement for all producers and exporters. HACCP is a technique that involves examining the production process, identifying the critical areas of concerns (hazards) and putting measure in place to prevent potential problems from happening. It is preventive, not reactive Besides market requirements required by EU law or individual EU country law such as regulations on food hygiene and contaminants in food, there are also additional requirements set by companies, most notably in the retail sector. MSC (Marine Stewardship Council) certification and Friends of the Sea labelling are rapidly growing in importance for seafood and GLOBALGAP for farmed fishery products. For this segment of the sector it is also important to note that an EU-wide organic standard for fish farming has been released in 2010. Figure 12: New trends in fisheries & aquaculture markets
Further, many EU businesses, associations and multi-stakeholder initiatives apply a Code of Conduct, of which the most practiced one is the FAO Code of Conduct for responsible fisheries. Besides environmental sustainability considerations, operational health and safety and human rights of workers and producers are also getting a lot of attention. One of these initiatives that has become important for especially supermarkets is Business Social Compliance Initiative (BSCI) which committed to improving working conditions in the global supply chain, including the food and primary production sector. Apart from those, it is highly recommended to comply with:47 Source: Aqua King Presentation • ILO Fundamental Labour Standards; • ISO 26000; • Packaging – Sustainability issues and trends; and • Sustainability Reporting Global Reporting Initiative (GRI) Moreover, as illustrated in Figure 12, trends which are already prevailing in other sectors gradually catch foot in the fisheries and aquaculture sector.
Sri Lanka applies both Tariff and Non-Tariff Measures to regulate import and exports. Sri Lanka is a member of the World Trade Organisation since 1 January 1995 and applies General System of Preferences (GSP) and the Trade Facilitation Agreement. Sri Lanka has special GSP+ conditions in trade with EU and more negotiated a number of free trade agreements
47 http://www.srilankabusiness.com/exporters/standards/sea-food-products-standards.html
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with countries in Asia. The import duty on shrimps and prawns under WTO arrangement for supply from Sri Lanka in Japan is 1% while for imports in USA are duty free. Exports are, however, confronted with strict regulations related to quality and health standards. Non-tariff import regulations are very strict in Japan, EU and USA and less strict in Maldives. Japan, EU and USA use quota system to regulate import of fish products and importers need an import quota certification document. Fish products need to meet health and condition certification, labeling and packaging regulations and food import permit. Trade documents are required (packing list, bill of lading, insurance, pro-forma invoice and certificate of origin). In the short run, these regulations obstruct trade but in the long run help Sri Lankan producers and exporters of aquaculture products to achieve better quality standards and higher competitiveness. Strengthening the political situation in the country, improving the infrastructure and good supply of power, and further promotion of tourism and flights to Sri Lanka are considered by the stakeholders as positive impetus for growth of the aquaculture sector and sensible trade promotion of aquaculture exports in the future.
3 . 3 Problems encountered in the aquaculture s e c t o r , n a m e l y shrimps and ornamental p r o d u c t i o n
3 . 3 . 1 Shrimps production
3.3.1.1 Cost of production
The entire agriculture sector in Sri Lanka is characterised by relatively high production costs. According to the statements made by the interviewees the aquaculture sector does not seem to be an exception in that. The cost of production for shrimps increased from 410 LKR / kg in 2008 to 807 LKR/kg in 2019 resulting in an increase by 97 % whereas the farm gate price of shrimps increased from 455 LKR/kg to 820 LKR/kg in the same time period resulting in an increase of 80 %. However, more serious is the little profit margin experienced in the last years, particularly 2018 and 2017. Details can be seen in Figure 13. Major cost items are: • feed cost (almost the entire feed is imported and 1 kg feed costs 270 LKR); • electricity (1 kwh domestic consumptions costs US$ 0.26 the 1 kwh for industrial purposes costs 0.07 US$); and • labour cost. According to recent field data collected by TAMAP, the composition of recurrent shrimp production costs are: feed (60 %), chemicals (16%), labour (13%) and electricity (11%). This coincides approximately with the findings of a survey made in 2015.48
48 Menake Gammanpila, Economic Viability of Small Scale Shrimp (Penaeus Monodon) Farming in the North- Western Province of Sri Lanka - United Nations University Fisheries Training Programme, Iceland [final project], 2015, available at: http://www.unuftp.is/static/fellows/document/menake14prf.pdf, [accessed on: April 2018].
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Figure 13: Production cost and farm gate prices (in LKR / kg) for shrimp (2008-2018)
Shrimp Prices (Rs) & Production Cost/Kg (Rs) In Sri Lanka 982 961
889 876 847 820 807 783 748 704 706 695 676 664 678 607 583 576 550
472 455 454 410 423
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 MAR-19 Farm Gate Prices Production Cost
Source: Global Trends in Agriculture, Presentation made by King Aqua Services, collected from the company on 17 April 2019
3.3.1.2 Market price drop for shrimp farmers
Economic pressures lead to increasing numbers of farmers harvesting at 3–3.5 months for the domestic market. The usual production target was 30 g shrimp within 4 month of pond culture. However, when the market price was favourable, many farms did a partial harvest after he 3rd month when an average shrimp weight was 20 g. In recent years, the lower export price and reasonable local market price caused many farmers to sell their harvest to the local market. At the time of our field investigations in April 2019, the farm gate price paid for 1 kg of 25 g shrimp to farmers was between LKR 800 - 820 for export shrimps and about LKR 770 – 800 for 1 kg of 20 g shrimps on the local market. At the time of the TAMAP field investigations, a not insignificant number of farmers complained about the high production costs in conjunction with low arm gate prices. For the last two crops (harvests) no profit was made and some farmers were considering to suspend their production for the next crop.
3.3.1.3 Frequent Disease occurrence
Major problem of Sri Lankan shrimp farmers face the white spot syndrome virus. White spot disease (WSD) is a serious disease of farmed shrimp globally. Vertical transmission occurs from infected broodstock and the horizontal transmission of disease is usually via cannibalism of sick or dying prawns, or directly through contaminated water. Most crustaceans including all
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penaeid shrimps (monodon, vannamei, indicus etc.) and crabs can be affected by WSD all the life stages of shrimp may get infected by this virus. affected shrimp exhibit anorexia, lethargy, reddish discoloration and presence of circular white spots on the carapace and other exoskeletal parts. Mortality of shrimp may start 2-3 days after infection and reach 80-90 per cent within 5-7 days of onset of first mortalities, necessitating emergency harvest. Birds can also transmit the disease from pond to pond by releasing caught prawns over neighbouring ponds.49 There is no treatment for the WSSV. Prevention is the only way to avoid the disease Photo 1: Rehabilitation of virus infected ponds
Evidence from the TAMAP field investigations suggest that approximately 120 farmers on a total area of about 180 ha are suffering from the WSSV in the area of Arachchikattuwa which is close to Chilaw. All shrimps farmers use the same lagoon water and since the river is blocked by a barrage for flood control, no fresh water is conveyed by the river and little exchange of water is happening. Therefore, the virus has been prevalent for the last few years in this particular lagoon. In order to bring these farmers back into a profitable and sustainable production of shrimps, a major rehabilitation programme should be implemented by removing the entire water of the ponds, drying them out for a few months, treating them and to construct buffer ponds as well as proper drainage canals. Furthermore, the barrage upstream should release more often river water ensuring a better exchange of fresh water with lagoon water.
Box 1: How to avoid the White Spot Disease?
(a) The white spot syndrome virus (WSSV) can persist in wet soil. Carry out pond preparation properly by drying, applying lime etc. Provide sufficient time of at least three to four weeks between the culture cycles to enable the pond soil to completely dry. (b) Stock only post larvae (PL) of at least PL15 stage. Select healthy PL using stress tests and make sure that the PL are negative for WSSV by PCR testing. (c) Adopt strict biosecurity measures by providing reservoir ponds, bird and crab fencing, proper sanitation of men, material and machines. (d) Adopt best management practice (bMP) to maintain good water quality, proper feed usages and good health of shrimps through regular monitoring. (e) Usages of probiotics and immunostimulant may be helpful. However, avoid using too many chemicals / unauthorised products without knowing their exact effect. Source: Prevention & Management of white spot disease of shrimp; Central Institute of Brackishwater Aquaculture; CIBA Extension Series No. 51, 2016
49 https://thefishsite.com/disease-guide/white-spot-syndrome-virus
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3.3.1.4 Inconsistent production of shrimps from the farms and low productivity of shrimp farms
Much of the production of shrimps comes from smallholder producers which provide often an erratic supply of shrimps. This is even exacerbated by the occurrence of the black spot shrimps disease which significantly reduces the supply. According to the information given by one of the leading shrimps processors, productivity of shrimp farming is low with 3,000 ponds producing only about 4,500 metric tons in two seasons (crops) and given a survival rate of average 50% each pond with about 0.4 ha (1 acre) produces only 750 kg per year.
3.3.1.5 Lack of capacity to assess, diagnose, manage and prevent diseases
Fish and shrimp diseases are a prevailing source of instability in production and farm failure. The lack of capacity to assess, diagnose, manage and prevent diseases is common across all sectors of aquaculture in Sri Lanka.50 Disease out breaks, lack of best management practices, biosecurity precautions and absence of advanced sciences and technology adaptations have contributed to low levels of production.51 A roundtable discussion on sustainable development of shrimp held in 2014 revealed that shrimp farming countries such as China, Thailand, Vietnam and India are adopting the latest technologies and best management practices to manage virus and bacteria diseases and have thereby enhanced the level and stability of production considerably. Sri Lanka, in contrast, lacks research institutes on shrimp capable of supporting the industry to manage these diseases. The current disease control and prevention practices in Sri Lanka are considered incompatible with the objective of reducing disease occurrences. If not remedied, these systemic weaknesses will slow the successful expansion of the industry to other suitable areas of the country. Studies suggest that long-term use and misuse of antibiotics may have causes alteration of microbial communities and the generation of drug resistance strains of bacteria. The indiscriminate use of antibiotics leading to the development of multiple-antibiotic resistant pathogenic bacteria in shrimps and humans is highlighted as a concern. A study done in 2017, for example, state that to prevent disease, antibiotics are indiscriminately used in hatcheries in Sri Lanka. The study finds an alarming trend of low effectiveness of antibiotics used against Vibriosis in Shrimp. The study highlights the importance of using alternative methods for controlling Vibriosis, such as improved environmental and nutritional practices.52
50 Craig Stephen, Tim DeJager, Sam Daniel, Sunil Jayakody and Jennifer Dawson, Promoting rural income from sustainable aquaculture through social learning in Sri Lanka, 05 March 2013, available at: https://idl-bnc- idrc.dspacedirect.org/bitstream/handle/10625/50891/IDL-50891.pdf, [accessed on: April 2018]. 51 Coordinating Secretariat for Science Technology & Innovation (COSTI), Report, Round Table Discussion, Sustainable Development of Shrimp, 28 July 2014, available at: https://costi.gov.lk/index.php/en/2011-03-31- 04-24-11?download=182:round-table-discussion-shrimp-farming-industry, [accessed on: April 2018]. 52 P.P.M. Heenatigala. 2013, Species Diversity and Antibiotic Sensitivity of Pathogenic Bacteria Isolated from Hatchery Bred Shrimp Larvae in Sri Lanka, Journal of the National Aquatic Resources Research and Development Agency, Vol. 42, available at: http://www.nara.ac.lk/wp-content/uploads/2017/09/Volume-42- Paper-2.pdf, [accessed on: April 2018].
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3.3.1.6 Weak dissemination of knowledge
Most shrimp farmers are not aware of the basic principles of Best Manufacturing Practices (BMPs) and Biosecurity measures.53 The poor connectivity of knowledge sources and expertise limits the diffusion of knowledge on techniques, structures, and strategies required for sustainable production to farmers.54 Training opportunities and awareness of even the limited training available especially for small sale farms remains limited. As a result, farm owners rely on information and knowledge provided by feed or chemical supplying companies.55 This is a concern because small scale shrimp farmers (that manage less than five ponds) are very important for the survival and performance of the industry. Disease outbreaks and resulting instability in production as well as lack of knowledge on profitable operations, better understanding of the relevant elements and of their relationships in the entire production process makes these farmers continuously enter and leave the industry.
3.3.1.7 Unsustainable aquaculture practices
A study done in 2013 on sustainable aquaculture development in Sri Lanka as a means of promoting rural incomes states that although embraced in principle, strategies for sustainable aquaculture were either non-existent or sparse in Sri Lankan legislation. Weak policy implementation, monitoring and enforcement were key problems faced by the industry. Best management practices, biosecurity and sustainability have become topics of seminars and workshops but have not been implemented at the farm level. As a result, the shrimp industry has evolved under the constant barrage of disease, leading to unstable and crisis focused organizational structures in the value chain. 56 Another report using satellite imagery from 1992 to 2012 stated that there has been an explosion in prawn farms from less than 40 ha in the study area to over 1,100 ha (a rise of over 2,700%). This combined with a decline in natural habitats – mangroves lost some 36% of the area studied over the period. Yet most of these ponds are now unproductive or abandoned.57
3 . 3 . 2 Ornamental fish production
The ornamental fish production in Sri Lanka is not much affected by production related challenges such as diseases, high cost of production or inadequate management. Major areas
53 Coordinating Secretariat for Science Technology & Innovation (COSTI), Report, Round Table Discussion, Sustainable Development of Shrimp, 28 July 2014, available at: https://costi.gov.lk/index.php/en/2011-03-31- 04-24-11?download=182:round-table-discussion-shrimp-farming-industry, [accessed on: April 2018]. 54 Craig Stephen, Tim DeJager, Sam Daniel, Sunil Jayakody and Jennifer Dawson, Promoting rural income from sustainable aquaculture through social learning in Sri Lanka, 05 March 2013, available at: https://idl-bnc- idrc.dspacedirect.org/bitstream/handle/10625/50891/IDL-50891.pdf, [accessed on: April 2018].
55 Coordinating Secretariat for Science Technology & Innovation (COSTI), Report, Round Table Discussion, Sustainable Development of Shrimp, 28 July 2014, available at: https://costi.gov.lk/index.php/en/2011-03-31- 04-24-11?download=182:round-table-discussion-shrimp-farming-industry, [accessed on: April 2018]. 56 Craig Stephen, Tim DeJager, Sam Daniel, Sunil Jayakody and Jennifer Dawson, Promoting rural income from sustainable aquaculture through social learning in Sri Lanka, 05 March 2013, available at: https://idl-bnc- idrc.dspacedirect.org/bitstream/handle/10625/50891/IDL-50891.pdf, [accessed on: April 2018]. 57 Mark Huxham, How shrimp farming wreaked havoc on Sri Lankas coasts, 21 July 2015, available at: http://theconversation.com/how-shrimp-farming-wreaked-havoc-on-sri-lankas-coasts-44933, [accessed on: April 2018].
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for improvement can be seen more in the post-harvest handling. The field survey found that the following areas offer scope for improvement:58 • Improvement of supply and holding facilities • Improvement of sustainable packing methods. In the traditional packing method, fish can survive maximum 36 hours from harvesting to final destination • More efforts in market intelligence to explore new markets • Encouragement to increase number of exporters • Increase number of direct flights to major destination where ornamental fish are exported.
3 . 3 . 3 Copying strategies of shrimp farmers
3.3.3.1 Gradual replacement of black tiger shrimp by Vannamei
Given the challenges black tiger shrimp farmers are facing, there is a common understanding that further market growth and development of shrimps production might not be possible with the black tiger shrimp. Major challenges of black tiger shrimps production can be summarised as follows: • Fluctuation of Brood Stock Supply • Poor Quality Brood Stock due to probable inbreeding. • Post larvae Produced will be lower in Quality. • More Disease Occurrence in the Farms • Low Productivity • High Production Cost • Inconsistent Supply to Export market • Fluctuation in Shrimp Prices • Under productivity from the Existing Ponds • Loss of Business Opportunities
In view of that it is proposed to switch from P. monodon to P. vannamei production due to the following reasons:
1. Growth Rate: Vannamei can grow as fast as P. monodon up to 20 g and typically grows faster (1-1.5 g/week) than P. monodon (1 g/week) currently in Asia. Size range on harvest generally smaller. 2. Stocking Density: P. vannamei are amenable to culture at very high stocking densities of up to 150/m2 in pond culture, and even as high as 400/m2 in controlled recirculated tank culture (compared to 30 /m2 of P. monodon). Although such intensive culture systems require a much higher degree of control over environmental parameters, it enables the production of high numbers of shrimp in limited areas, resulting in better productivity per unit area than that currently achievable with P. monodon in Asia 3. Higher salinity tolerance compared to P. monodon 4. Higher temperature tolerance compared to P. monodon: it can grow in water with lower temperature and is therefore more resistant towards WSSV.
58 Ornamental fish Sri Lanka; presentation made by T. Ranasinghe & others. https://de.slideshare.net/spoonroxss/ornamental-fish-industry-in-sri-lanka
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5. Dietary Protein Requirements: vannamei requires a lower protein (and hence cheaper) diet (20-35 percent) during culture than P. monodon, and are more able to utilize the natural productivity of shrimp ponds, even under intensive culture conditions. In Thailand for example, current grow-out feeds for P. vannamei contain 35 % protein and cost 10-15 % less than the 40-42 % protein feeds for P. monodon. Additionally, feeding efficiency is better with P. vannamei, which yield an average Feed Conversion Ratio (FCR) of 1.2, compared to 1.6 for P. monodon. These factors, together with higher growth and survival rates are responsible for the 25-30 percent lower production costs for producing 20 g of P. vannamei than P. monodon. 6. Ease of Breeding and Domestication: P. vannamei is an open thelycum species, meaning that they can be induced to mate and spawn easily in captivity (unlike the closed thelycum P. monodon) which enables the culturist to close the life cycle of the shrimp, facilitating genetic selection (i.e. for improved growth rate and disease resistance) and domestication programmes. This feature permits much more control and enhancement of the cultured stock and allows the development of SPF and SPR stocks, which are already commercially available. This in turn relieves the expense, disease implications, environmental concerns, unpredictability and waste of relying on wild broodstock 7. Larval Rearing: Larval survival rates during hatchery rearing are generally higher (60- 70 %) with P. vannamei than with P. monodon (40-50 %) 8. Disease Resistance: Penaeus vannamei is generally considered to be more disease resistant than other white shrimp. Penaeus monodon is generally regarded as being highly susceptible to both WSSV and YHV, but not to IHHNV or TSV 9. Post Harvest Characteristics: After harvest, if well treated with plenty of ice, P. vannamei are particularly resistant to melanosis and keep a good appearance three to four days after defrosting. However, P. monodon tend to have a longer shelf life and are easier to handle, transport and process than P. vannamei.
Proposal to introduce Vannamei: • Select 500 Ponds in NWP • Stocking Density 50 PLs per Square Meter • Average Size at Harvest 20 grams • Expected Survival: 80% • Expected production: 4000 per Crop/Pond • Culture period : 120 Days • No of Crops per Year: 02 • Production per Crop: 2000 MT • Annual production: 4000 MT For details see presentation which can be downloaded from the website of Aqua King.
3.3.3.2 Moving shrimps production from west to north-east coast
Shrimp production at the west coast has been continued for more than 30 years. Given the high population pressure, flood control mechanism and limited areas, the lagoons at the west coast are worn out and the water quality is not favourable for a virus-free shrimps production. Therefore, any further development and expansion of shrimps production should take place in pristine & virgin areas at the east coast starting from Batticaloa towards Trincomalee.
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3 . 4 Demand related aspects on aquaculture in Sri L a n k a
3 . 4 . 1 Size of local and export m a r k e t in terms of value and volume for aquaculture shrimps
The demand for aquaculture products in Sri Lanka originates from three market segments i.e. local market, regional market and export market. In order to estimate the quantitative size of the demand we attempt to estimate the demand for aquaculture products in each of these market segments.
3.4.1.1 Local market
Local markets are essentially the wholesale and retail markets near the landing centres (in the periphery of 25 – 30 km accessible by foot cycles and motor cycles), which include villages, sub divisions and nearby towns. The demand in these markets is generally stable except for the deviations during special occasions e.g. wedding ceremonies, festivals, alms giving. The main characteristics are as follows; 1. Demand for the average to low value product is based on the availability 2. Purchasing power of the consumer is the limiting factor for consumption of high value product 3. Number of vendors is limited 4. Demand for the aquaculture species is limited due to food habits of the community. Only limited species are in demand 5. Demand for the marine fish is higher than the inland fish 6. High value product rarely enters the local market 7. Demand is affected by the socio-cultural and the religious prohibitions to the extent that the market closes due to absence of the buyers from the market 8. The cost of operation is low as the product is consumed
3.4.1.2 Regional market
Regional markets are the bigger markets situated in the state capitals, large cities or metropolitan cities with variegated supply and demand linkages. The number of operators, limited is higher than local markets. These markets normally cater to a larger geographic location and the volume of trade is high. The number of buyers is high as compared to the local market. The characteristics of the markets are: 1. Serves as a channel to cater to up-country markets and distant markets 2. Serves as a connecting channel with the retailer, end user and the producer 3. More capacity to absorb the bulk in the supply due to high number of demand channels 4. Price fluctuation is high and can happen on a daily basis depending on the demand of the larger market for the product 5. Purchasing power of the end consumers is higher than that in local markets
In this regional market we can distinguish between two major categories of outlets, namely supermarkets and hotels.
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Supermarkets Demand for aquaculture products from supermarkets in Sri Lanka is limited. Sri Lanka has 90 Keels supermarkets, 373 Cargills supermarkets, 38 Arpico supermarkets and 36 Laugfs supermarkets in 2017 so a total of 537 supermarkets of the main chains. These are mainly small and medium size supermarkets with few hypermarkets. Apart from these chains, there are approximately 50 more outlets in the country so a total of about 590 supermarkets in Sri Lanka in total. Keels (with the biggest supermarkets) sells about 20 kg per outlet of fish products a day while Cargills sells about 8 kg per outlet per day. Only 25% of the sales are from inland aquaculture. Based on this, we estimate the supermarkets sell about 522 metric tons aquaculture products annually.
Hotels and Restaurants The procurement system of upmarket hotels and restaurants catering to international tourists and businessmen is connected to the suppliers via collectors. The hotels and restaurants place their orders with collectors and independent procurement agencies and use services of preferred suppliers. The preferred supplier is responsible for the quality of the product. Collectors, preferred suppliers and procurement agents use their own ice boxes and cooled trucks (freezer or non-freezer) to transport produce. Sri Lanka had international arrivals of 2.1 million in 2017.59 The average consumption of fish in EU countries is about 68 grams per capita per day (EU fish market monitor) of which 10% shrimps and prawns while Chinese are consuming considerably more at about 135 grams per capita per day (Fish site, Chinese Seafood – Production and Consumption) of which 8 to 10% shrimps and prawns. Based on an average consumption of 9 to 10 grams per capita per day and an average stay of 10 nights per capita, the Sri Lanka international arrivals generate a demand of 1,878 metric tons of shrimps and prawns a year.
3.4.1.3 Export markets
The procurement system of exporters is directly connected to the suppliers. The larger producers are also exporters while others use services of preferred suppliers. Major exporters operate in close collaboration with the farmers. These companies have teams of extension workers in their service who work closely with the preferred suppliers. They assist preferred suppliers in compliance with the orders and contracts.
Table 4: Exports of shrimps and prawns from Sri Lanka and world trade
2015 2016 2017 HS 030617 Frozen, cold water shrimps and prawns
World
1000 US $ 13,594,100 ,14,884,708 14,180,206 Metric tons (MTs) 1,660,073 1,880,479 1,754,796
59 Monthly Statistical Bulletin 2017, Sri Lanka Tourism Development Board
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2015 2016 2017 Sri Lanka 1000 US $ SL % to world 10,138 13,278 18,216 1 MTs 0.08 % 0.09 % 0.13 % SL % to world 972 1,339 1,604 0.06 % 0.07 % 0.09 %
Source: UNCOMTRADE database
But also, in this system, the preferred supplier is responsible for the quality of the product before delivering it to the exporting company. Preferred suppliers and procurement agents use their own trucks (freezer or non-freezer) to transport produce. In 2015, 2016 and 2017 Sri Lanka exported 1,341, 1,667 and 1,844 metric tons of Shrimps. As it can be seen from Table 4 Sri Lanka captures only a very small portion of the world market i.e. not even 0.1 %in quantity and also not in terms of value apart from year 2017.
To summarize, the procurement system of aquaculture products largely operates through a system of vertically organised companies and preferred suppliers who are responsible for the compliance with orders. The estimated total size of the demand for aquaculture inland production in Sri Lanka is 1,000 on local markets, 522 tons (supermarkets), 1,878 tons (hotels and restaurants) and 1,600 tons (exports) summing up to a total demand of 5,000 tons in 2017.
3 . 4 . 2 S i z e o f market in terms of value and volume f o r o r n a m e ntal fish from Sri Lanka
The ITC Trade Map data compilation distinguishes between live ornamental freshwater fish and non-freshwater ornamental fish. It does not give figures for ornamental fish from aquaculture. Nonetheless, In order to illustrate Sri Lanka’s share in the export of ornamental fish compared to the word trade we present those figures in Table 5. It can be ascertained that Sri Lanka’s shares are very erratic. As such the Sri Lana’s exports of non-freshwater ornamental fish was 10.2 % in 2017 and only 3.3 % the previous year. In parallel, Sri Lanka’s share of freshwater ornamental fish was 6.7 % in 2015 and 2.6 % the subsequent year. Figures (no time series data available) from the Export Development Board indicate that in 2017 a total of 296 metric tons of ornamental aquaculture products were exported with a value of US $ 7.3 million. Given the total ornamental fish exports in 2017 with a total value of US $ 14.892 million, the exports from aquaculture ornamental production constitutes 49 %. Details are presented in Table 5
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Table 5: Sri Lanka’s exports of ornamental fish compared to world imports in thousands US $
2015 2016 2017 2018 Live ornamental fish (excluding freshwater) World imports in 1,000 US$ 59,026 73,234 74,549 64,727 Sri Lanka's exports in 1,000 US$ 1,935 6,757 7,611 4,035 Sri Lanka's percentage at world trade 3.3% 9.2% 10.2% 6.2%
Live ornamental freshwater fish
World imports in 1,000 US$ 215,122 221,556 241,394 243,609 Sri Lanka's exports in 1,000 US$ 14,319 5,860 7,281 8,853 Sri Lanka's percentage at world trade 6.7% 2.6% 3.0% 3.6% Source: ICT Trade Map Data Base
3 . 4 . 3 Competition
3 . 4 . 4 Market share of major competitors in terms of v a l u e a n d v o l u m e of shrimps and prawns
Sri Lanka’s imports of shrimps and prawns is relatively negligible. As such only 40 tons were imported in 2017 which indicates that the aquaculture production does not seem to face much competition from abroad.
Table 6: Major export markets for shrimps and prawns from Sri Lanka in 2016
World Sri Lanka 1000 USD MTs $/Kg 1000 MTs $/Kg USD All frozen, shrimps and prawns
Japan 1,560,589 149,207 10.5 15,187 1,446 10.5 USA 4,566,411 469,413 9.7 1,608 171 9.4 France 737,976 89,426 8.3 392 68 5.8 Maldives 5,857 406 14.4 1,065 117 9.1 Saudi Arabia 51,396 5,767 8.9 945 106 8.9 Singapore 58,142 8,218 7.1 138 20 6.9
Source: UNCOMTRADE
This compares to 1,844 tons of exported shrimps and prawns in 2017 (see Figure 10) resulting in 2.2 % of imported shrimps and prawns compared to exported quantity. Japan is the most
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important market for Sri Lankan shrimps and prawns. According to statements by exporters, Sri Lankan prawns are characterized by a red colour which is demanded in Japan. Japan is with the USA the main international importer of shrimps and prawns and Sri Lanka only captures about 1% of the Japanese imports and less than 0.5% of the USA imports. Sri Lanka appears to get a better price per kg on the Japanese market but the Japanese market is also the most demanding market in terms of quality standards. The Maldives is a much smaller market but a high-priced market. France and Singapore are less interesting markets for Sri Lanka as import prices relatively low. Details are presented in Table 6. Similar price differentials can be observed for shrimps and prawns exported from Sri Lanka produced under aquaculture.
Table 7: Major export markets for shrimps and prawns from Sri Lanka produced under aquaculture
EXPORTS FROM SRI LANKA Crustaceans; frozen, shrimps and prawns, excl cold water varieties from 2015 2016 2017 AQUACULTURE 1000 $ MT $/kg 1000 $ MT $/kg 1000 $ MT $/kg
World 10,138 972 10.4 13,278 1,339 9.9 18,216 1604 11.4 Japan 6,086 562 10.8 8,873 873 10.2 11,019 953 11.6 USA 727 60 12.1 1,393 118 11.8 1,465 113 13.0 France 662 94 7.0 416 70 5.9 3 1 3.0 Maldives 968 68 14.2 827 74 11.2 1,525 130 11.7 Saudi Arabia 17 3 5.7 263 53 5.0 840 158 5.3 Singapore 154 25 6.2 142 20 7.1 84 10 8.4 Source: Own calculations based on UNCOMTRADE statistics
A crucial question is whether Sri Lanka can compete with major shrimps producers and exporters. Table 8 shows that the value and quantity of shrimps exported from Sri Lanka constitutes a marginal share compared to Argentina or India and other Asian countries. The value exported from Sri Lanka is estimated at 0.4 % of the exports from India. The same table presents some first indications with regard to the f.o.b. prices of shrimps. Sri Lanka’s prices are approximately 65 % higher than those of Argentina and Ecuador and still about 20 % higher than those from India. This means that Sri Lanka’s shrimps are characterized by a higher quality but might have also significant higher production costs.
Table 8: Exports of shrimps & prawns from Sri Lanka and major competitors
Crustaceans; frozen, EXPORTS FROM MAJOR COMPETITORS OF SRI LANKA shrimps and prawns, excl cold water varieties from 2015 2016 2017 AQUACULTURE 1000 $ MT $/kg 1000 $ MT $/kg 1000 $ MT $/kg
Argentina 763,760 120,786 6.3 1,002,815 159,889 6.3 1,200,043 183,280 6.5 Ecuador 1,894,670 284,988 6.6 2,254,581 324,340 7.0 2,671,265 384,806 6.9 Vietnam 1,731,416 184,626 9.4 1,820,293 223,122 8.2 2,204,604 245,580 9.0 Indonesia 1,189,502 129,992 9.2 1,260,253 134,498 9.4 140,357 142,300 1.0 India 3,072,991 369,018 8.3 3,461,950 412,924 8.4 4,610,759 541,303 8.5 China 971,039 95,049 10.2 1,048,183 97,350 10.8 905,228 92,730 9.8 Sri Lanka 10,138 972 10.4 13,278 1,339 9.9 18,216 1,604 11.4 Source: Own calculations based on UNCOMTRADE statistics
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3 . 4 . 5 Market share of major competi tors in terms of value and volume of ornamental fish
Guppies are about 70% of ornamental inland fish exports from Sri Lanka. Sri Lanka has 66 exporting companies of ornamental fish. Live rock is a new product in the SL ornamental fish trade. The USA is the main market for Sri Lanka ornamental fish exports. The UK is the main market in terms of volume for ornamental fresh water fish in the world but it is a relatively low value market. For Sri Lanka, the UK is also a main market mainly because Sri Lanka fresh ornamental fish imports are highly competitive on this market. The latter is mainly related to the activities of the Sri Lankan communities in the UK.
Table 9: Major export markets for ornamental fish from Sri Lanka in 2016
World Sri Lanka 1,000 USD MTs $/Kg 1,000 USD MTs $/Kg HS 030111 Fish Live Ornamental fresh water
USA 47,276 741 63.8 3,907 61 64.0 Germany 14,914 377 39.6 941 9 104.6 UK 18,371 1,013 18.1 882 68 13.0
Source: Own calculations based on UNCOMTRADE statistics
Table 10 implies that in 2017, Sri Lanka exported ornamental freshwater fish amounting to 7.281 million US$ to the world. Major recipients of ornamental fish from Sri Lanka are USA, followed by UK and then by Germany. From the prices accomplished one should not derive major implications since these are average prices and the number of species exported by Sri Lanka are high with significant differences in the value of the species.
Table 10: Exports of live ornamental freshwater fish from Sri Lanka
HS 030111 Fish Live EXPORTS FROM SRI LANKA Ornamental fresh 2015 2016 2017 water 1000 $ MT $/kg 1000 $ MT $/kg 1000 $ MT $/kg World 9,585 454 21.1 5,860 294 19.9 7,281 296 24.6 of which: Germany 526 20 26.3 592 35 16.9 829 47 17.6 Poland 188 15 12.5 270 13 20.8 319 12 26.6 USA 3,343 99 33.8 1,472 66 22.3 1,573 70 22.5 UK 921 76 12.1 595 55 10.8 864 70 12.3 Russia 207 5 41.4 141 3 47.0 254 3 84.7 Australia 235 4 58.8 229 5 45.8 242 4 60.5 Canada 299 24 12.5 204 16 12.8 211 9 23.4 France 452 18 25.1 374 23 16.3 363 16 22.7 Source: Own calculations based on UNCOMTRADE statistics
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With regard to the potential of further exports from Sri Lanka to their key markets Table 11 depicts some interesting findings. USA, for instance imported ornamental freshwater fish worth US$ 48.222 million in 2017. Ornamental freshwater fish worth US$1.573 million came from Sri Lanka which constitutes about 3.2 %. Germany imported ornamental freshwater fish worth US$ 14.629 million in 2017. Ornamental freshwater fish worth US$ 0.829 million came from Sri Lanka which constitutes about 5.6 %. This shows that theoretically, there is still large potential for further exports from Sri Lanka in their traditional importing countries.
Table 11: Imports of ornamental fish worldwide and major importing countries
HS 030111 Fish Live IMPORTS FROM THE WORLD Ornamental fresh 2015 2016 2017 water 1000 $ MT $/kg 1000 $ MT $/kg 1000 $ MT $/kg World 210,192 217,965 214,434 of which: France 10,338 326 31.7 10,880 328 33.2 11,065 203 54.5 Germany 15,269 391 39.1 14,915 376 39.7 14,629 129 113.4 Japan 12,954 80 161.9 13,200 79 167.1 12,417 72 172.5 Singapore 13,029 182 71.6 12,438 194 64.1 11,844 160 74.0 UK 19,227 1,043 18.4 18,331 1,012 18.1 17,263 887 19.5 USA 44,063 615 71.6 47,276 741 63.8 48,222 650 74.2 Source: Own calculations based on UNCOMTRADE statistics
3 . 4 . 6 Cost of production of major competitors compared to Sri Lanka
Sri Lanka is considered as a high cost country regarding agriculture production. This is mainly attributed to high labour cost due to labour shortages but high investment costs since most of the cost items are subject to high custom duties. In the following the attempt is made to verify or falsify the high cost argument. Since it is very difficult to get comparable and reliable figures of production costs from other countries, we try to break down into the various cost items such as labour, electricity and feed plus comparing with latest studies developed for the aquaculture sector. According to our findings it cannot be confirmed that Sri Lanka is a high cost country with regard to the production of shrimps. Most of the sources consulted imply that the unit costs of major competitors of Sri Lanka, namely India, Indonesia and Malaysia are characterised by higher productions costs. Since we compiled these figures based on various internet research, it is not known how these costs were calculated. Different sources might have applied different concepts. In order to have first hand information, we looked at costs of major components contributing to production costs, namely, feed costs, electricity and labour costs. We compared figures form Sri Lanka with those from India. The result are quite interesting.
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Table 12: Comparison of production costs for shrimps in various Asian countries in US $ / kg
COUNTRY Thailand Indonesia Philippines Malaysia India Sri Lanka China Taiwan Vietnam Bangladesh Source
Economics and Management of shrimp and carp farming in Asia: collection of research articles , 4.26 4.59 6.81 4.83 5.01 4.56 4.90 7.33 April 2001. Figures related to 1996 in US $ / kg in intensive farming system
Same source as above Figures related to 1996 in 3.78 4.01 5.50 5.96 4.56 2.27 3.34 12.04 US $ / kg in semi-intensive farming system
Same source as above Figures related to 1996 in 1.74 3.86 2.61 4.42 3.45 1.62 3.04 4.07 US $ / kg in extensive farming system
Shrimp production in India: presentation made from Wenger at Aqua Expo. Data relate to 2018 4.50 and shrimps with 18-20 gr , semi intensive production
Production costs of P.monodon, figures by INVE 4.2 - 5.2 Aquaculture, Thaliand, 2007 around 35 gr
Production costs of P.vannamei, figures by INVE 2.5 - 3.0 Aquaculture, Thaliand, 2007 around 20 gr
Production costs of P.monodon, figures by INVE 1.2 - 1.4 Aquaculture, 2007 around 14 gr
Production costs shrimps in Maharasthra, India 4.60 in 2005
Production costs of P.vannamei, figures from 3.30 Gujrat, India in 2014
Production costs of P.monodon, figures from 3.70 Gujrat, India in 2014
Production costs of P.monodon, TAMAP survey 3.36 April 2019 Source: Compilations based on various sources
Table 13: Comparison of costs of components contributing to production costs for shrimps between India and Sri Lanka in US $
INDIA SRI LANKA Components in RS in US$ in LKR in US$
Feed for shrimps 1 kg 80 1.14 270 1.53
Monthly wage for high skilled worker 2019 47,300 676 60,800 345 Monthly wage for low skilled worker 2019 14,000 200 23,500 134
Electricity (industrial rate) 1 kwh based on 2,000 kwh consumption per month. Figures for India are related to 13.6 0.19 12.5 0.07 Maharashtra
Electricity (domestic rate) 1 kwh based on 2,000 kwh consumption per month. Figures for India are related to 15.2 0.22 43 0.24 Maharashtra Source: Own calculations based on: Shrimps feed: https://dir.indiamart.com/impcat/fish-feed.html. For SL field data Electricity: https://wss.mahadiscom.in/wss/wss?uiActionName=getEnergyBillCalculator and http://leco.lk/bill-calculator Labour: https://tradingeconomics.com/india/indicators
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Whereas feed costs are in Sri Lanka by 34 % than in India, electricity for industrial purposes costs only 37 % of those in India and labour costs are also significant lower in Sri Lanka compared to India. In view of our findings, review of literature review and also own calculations, it cannot be confirmed that Sri Lanka has higher production costs than one of the main competitors – India.
3 . 4 . 7 Growth of the aquaculture market in Sri Lanka
3.4.7.1 Shrimps and prawns
The growth of the market is determined by population growth (about 1% in Sri Lanka) and by revenue growth in the market segments. Based on current ongoing developments in Sri Lanka, the growth trend in good quality demand for shrimps could look like: Supermarkets growth trend According to Fitch Report, the aggregated revenue growth in Cargills, Keels and Arpico supermarket chains in 2017 is 21% of which 4 to 5% is related to inflation so about 16% in real terms. Fitch expects the modern groceries retail sector continues its double-digit growth over the medium term, helped by the currently low penetration of supermarkets in the country, improvement in per capita income, rising urbanisation and changes in customer buying patterns.
Hotels and Restaurants growth trend According to Sri Lanka Tourist Development Board, international arrivals will grow at least with 3 percent annually over the medium term, helped by high scores as preferred tourist location (for example best tourist location of 2018 by Lonely Planet), new direct airline connections (for example Russian airline directly from Moscow started in 2018) and extensive tourist promotion activities.
Exports The production of shrimps from aquaculture is very erratic spread over the last 17 years and this very difficult to project the growth rate. The peak of shrimps production form aquaculture was in 2015 with 7,090 tons which declined to 4,630 in 2017. This might be attributed to the white spot disease which significantly reduced the production. Exports however significantly declined over the years from 4,855 tons in 2000 to 1,844 tons in 2017. In view of that we cannot expect any growth rate for shrimps exports. Any additional to shrimps produced will be sold on the local / regional market.
Table 14: Shrimps produced and exported in metric tons
YEAR 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Category Shrimps from aquaculture 4,360 3,540 2,560 3,360 2,390 1,570 2,480 3,580 2,230 3,550 3,480 4,150 3,310 4,430 5,150 7,090 6,030 4,630 Shrimps from wild capture 7,540 7,360 9,820 10,190 10,730 4,680 7,840 7,320 9,240 13,110 17,640 22,680 26,730 29,230 23,940 20,090 19,720 17,620 Total shrimps production 11,900 10,900 12,380 13,550 13,120 6,250 10,320 10,900 11,470 16,660 21,120 26,830 30,040 33,660 29,090 27,180 25,750 22,250 Exported shrimps 4,855 3,941 3,202 4,467 2,462 1,800 1,837 2,023 854 1,432 1,262 1,380 1,078 1,625 2,001 1,341 1,667 1,844 Source: Own calculations based on UNCOMTRADE statistics
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In view of the aforementioned it is anticipated that Sri Lanka has an opportunity to increase its revenues from the aquaculture sector with main focus on the local and regional market within Sri Lanka. Evidence from the last 20 years suggests that it cannot be expected that the export volume will significantly increase. The projections for shrimp aquaculture production can be summarised in the Table 13.
Table 15: Projections for aquaculture shrimp production
2017 2018 2019 2020 2021 Supermarkets 522 605 702 815 945 Hotels and 1,878 1,934 1,992 2,052 2,114 Restaurants Exports 1,844 1,844 1,844 1,844 1,844 Total 4,244 4,383 4,538 4,711 4,903 Source: Own calculations based on UNCOMTRADE statistics
3.4.7.2 Ornamental fish
Ornamental fish production is practically only for exports. Table 14 illustrates export value from Sri Lanka from 2009 to 2018. Peak of exports was in 2016 declining then in the subsequent 3 years. Nonetheless, the overall growth rate of ornamental fish exports was 51 % resulting in an average annual growth rate of 5.6 %. Assuming a similar growth for the future, it is estimated that by 2021, the value of exports of ornamental fish totals to US $ 15.176 million.
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4 FUNCTIONS
4 . 1 Function description
4 . 1 . 1 Black tiger shrimps
Brackish water shrimp farming industry in Sri Lanka is dependent entirely on hatchery-bred- post-larvae. The black tiger shrimp (Penaeus monodon) is a fast-growing tropical to subtropical species suited to warm, brackish waters. Purpose-built earthen ponds, constructed on coastal lands or adjacent to the estuarine parts of river systems, are used for the intensive culture of shrimps. Successful shrimp farming requires a sustainable and clean coastal resource. Shrimp larvae are produced in hatcheries, which use wild-caught spawners or broodstock collected mainly from the coastal waters. The majority of these spawners are gonadally mature and when they are transferred to the hatchery they either spawn spontaneously or are induced through the use of eyestalk ablation. Each spawner will produce between 200,000 and 500,000 eggs. The eggs are hatched and pass through a number of larval stages until they reach the post-larvae stage. The post-larvae are normally sold to the grow out farms for stocking ponds when they are 15-20 days old. The quality of the post-larvae will vary between spawners and the time of the year the spawners are collected. Between harvests, stocking ponds are dried out and accumulated sediments from the previous crop are removed. These sediments contain organic matter (dead plankton, faeces, uneaten food and old moults) and mineral matter (soil particles eroded from pond walls by aeration). Prior to filling, the ponds are limed to encourage plankton growth and minimise disease problems. The ponds are filled through screened inlets, fertilised with both organic and inorganic fertilisers and allowed to stand for 7-10 days to allow the plankton to develop. Ponds are stocked with post-larvae at rates varying from 25-40 per square meter. The post- larvae are weaned from plankton to manufactured feed over the first 4 weeks. Shrimps are fed 3-4 times per day, with the last feed being given close to dark. Feed is blown into the pond using an engine-driven blower. Consumption is measured at each feed by using feed trays that are submerged along the pond edges. Growth rates are monitored via weekly sampling of the shrimps. This feed management enables farms to minimise feed wastage and maintain good feed conversion rates. Feed conversion ratios (kilogram of feed to produce 1kg of shrimps) range from 1:1.4 to 1: 1.6. Stable pond conditions and good water quality are necessary to maximise survival and growth rates. Paddlewheels and aspirators are normally used for aeration. The aeration generates a current causing the sediments to accumulate in the centre of the pond. This maintains a clean feeding area around the pond edge. As the quantity of shrimps (biomass) increases, the level of aeration required increases to maintain the levels of dissolved oxygen in the water. A minimum of 1 kilowatt of aeration is required for each tonne of shrimps in the pond. Exchanging water controls, the density of algal blooms and ammonia levels in the ponds. Water exchange is minimised to help maintain stable water conditions. Wastewater is removed from the bottom of the pond and drained into sedimentation or treatment ponds before being reused or released to the environment. Crops are normally ready for harvest in 120-150 days; however, the time will depend on stocking rates and water temperature. Ponds are sometimes partially harvested using traps or seine nets, but more often a drain harvest is used. The water is released through the outlet structure, which has a net fitted over the pipe and the shrimps are then caught in this net. Partial harvests may be used early in the season to reduce the density of shrimps in the pond and allow the shrimps remaining to grow to a larger size. Normally, shrimps are harvested
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when they are 25-35g each. Shrimps are washed, graded and generally cooked before marketing. Some shrimps are sold green and others are individually quick-frozen for storage and sale at a later date.
Photo 2: Black tiger shrimps pond
4 . 1 . 2 Ornamental fish: Guppy
The Guppy is one of the most well-known and popular aquarium fish. They add plenty of color to tanks, are peaceful, relatively cheap and very easy to maintain. Guppies come in many different colors and sizes, with different shaped tails too. In the wild, females are typically grey and males have colorful stripes, spots or splashes in a wide range of colors. There are so many aquarium varieties due to breeders creating new strains with brighter colors and more patterns on their bodies and tails; even today, there are still new varieties being introduced. Males are typically smaller than the females, averaging between 0.6-1.4 inches, whereas females are around 1.2-2.4 inches long. These fish are sexually dimorphic, which means you can tell the males from the females just by looking at them. These fish come in almost every color imaginable, which is where they get the nickname ‘Rainbow Fish’ from. They are normally a paler color on the top and upper half of the body, and the rear part is usually a brighter, more vivid color. Some varieties can also look metallic. They have iridophores which are cells that don’t have color, and reflect light which creates an iridescent effect. Their natural habitat is in the warm freshwaters of South America, so it’s important to replicate these conditions into your tank to provide them with the most natural environment possible. Whilst they can tolerate a wide range of waters, and of PH’s, from 5.5-8.5, the most ideal PH for them is between 7.0 and 7.2. Guppies prefer a hard-water aquarium with a temperature between 25.5 and 27.8 °C.
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The food that fish eat depends on what’s available in their natural environment as well as their anatomy. Guppies are omnivores, which means they eat both plant and animal matter. They are not fussy eaters and will eat whatever you give them, including mosquito larvae. Their main diet should be good quality fish flakes. It is important to choose a product which is high in protein, and not filler foods. To supplement the fish flakes you can feed your fish either live or frozen foods such as shrimp and bloodworms. You can also give them vegetables such as peas, lettuce and cucumber. There are lots of different ways that fish breed. Guppies are ovoviviparous, which means that the females grow the fish inside their bodies, inside an egg. The baby fish use the egg sac for nourishment, and once they have absorbed that they hatch inside the female and the female gives birth to live young. It’s really easy to sex these fish once they reach sexual maturity (between three and five months). They have a number of tell-tale signs: (1) Colouring; males are usually much brighter and vivid in colour than females (2) Modified anal fin; males have a modified anal fin which is known as a gonopodium. It is longer and narrower than a female’s anal fin. Some species even have a pair of claws at the tip. (3) Males are smaller than females and (4) Females often have a gravid spot (a dark spot just behind the anal fin, which gets darker during pregnancy). Guppies have the mating system called polyandry, where females mate with multiple males. Multiple mating is beneficial for males because the males' reproductive success is directly related to how many times they mate. The cost of multiple mating for males is very low because they do not provide material benefit to the females or parental care to the offspring. Conversely, multiple mating can be disadvantageous for females because it reduces foraging efficiency and increases the chances of predation and parasitic infection Female guppies first produce offspring at 10–20 weeks of age, and they continue to reproduce until 20–34 months of age. Male guppies mature in 7 weeks or less. It is thought that males are able to determine which females are virgin and which are already pregnant. The male fish makes brief contact with the female and fertilization occurs when he passes a package of sperm known as spermatophores into the females. The packet then splits up in to thousands of sperm and the female store this to create a number of broods. She can have multiple pregnancies from only one fertilization over a period of time. It takes between four and five days from when the egg is fertilized to the embryo being nearly completely formed. For the rest of the gestation period, the fish develop organs. The gestation period is usually between 21 and 30 days. Towards the end of her pregnancy you may be able to see the eyes of the babies through her translucent skin. Once she gives birth to the live fry, the process will then repeat again, and she’ll give birth in a further 21-30 days. If you have a female and male Guppy in a tank they are likely to breed regardless of any input, you have. When birth occurs, individual offspring are dropped in sequence, typically over a period of one to six hours. The female guppy has drops of two to 200 fry at a time, typically ranging between 30 and 60 minutes. You can either choose to put the female in a breeding trap, use a breeding tank around a week before she is due to give birth, or remove the female fish once the fry is born to prevent her from eating them. When using a specific breeding tank, keep the bottom of the tank bare, and use plants such as Java moss which allow the fry to hide. Once inseminated, female guppies can store sperm in their ovaries and gonoducts, which can continue to fertilize ova up to eight months. Because of the sperm-storage mechanism, males are capable of posthumous reproduction, meaning the female mate can give birth to the male's offspring long after the male's death, which contributes significantly to the reproductive dynamics of the wild guppy populations. In a farming environment Guppy will be ready for sale after about 2-3 months from birth. This however will be determined by the farmer where some farmers tend to keep fish for a long time allowing it to become bigger and develop more colour. On average farmer will sell Guppy from the 3-4th month of the cropping cycle where a crop runs for 12 months (Number of harvests
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per year therefore can vary between 8-10 months). Ich is common amongst these fish. This is a disease where small white dots grow on the fish’s skin and you’ll notice them rubbing their bodies against objects. To get rid of ich, you can use medication available from your local pet store. They are also prone to fin rot; the tail will look likes it’s torn. Again, this can be treated with medication, and prevented by choosing suitable tank mates who won’t nip.
4 . 1 . 3 Organizational functions along the chain
Black tiger shrimps are based on brackish water (lagoon water) and Guppy are based on freshwater. Both these commodities are grown for the local consumption as well as for exports. However, the major aim is towards exports. Therefore, a range of organizations are involved in the value chain representing growers, input suppliers, exporters, government licensing authorities, government extension services, research organizations and export promotion entities and other. While shrimps are being traded in the cold chain and storage environment, ornamental fish are being traded in live form. Therefore, transportation also is not a common form for both commodities. National Aquaculture Development Authority (NAQDA) is responsible for issuing management licenses for both black tiger shrimp farming and Guppy farming. NAQDA also provides the necessary extension services to farmers. Extension service will cover basic management practices, any new knowledge and technology transfer and also knowledge on managing pest and diseases. Input suppliers cover all the necessary input materials such as brood stocks, post larvae, fish feed, fertilizers, water pumps, generators, air supply equipment, tank construction materials and many more. Shrimp farming is usually done at a larger scale. Average pond size can vary from 0.5 acres to 1. Larger farmers will have more than 10 such ponds. However, Guppy farming is done in cement tanks. Standard tank is 100 square feet and a larger farmer will work with more than 200 such ponds. Therefore, for both these commodities, smaller and a larger farmer groups can be easily identified. Once matured and harvested these two commodities enter in to the consumption phase. Shrimps will be traded among wholesale market, super markets, hotels and restaurants, other retail vendors and processors and exporters. Guppy will be targeted towards the export market and then the local retail market. Exporters involved with shrimps do processing as well using different technologies in order to improve the shelf life. Guppy does not go through a processing phase, rather they are traded locally and international as live fish. National Aquaculture Development Authority (NAQDA) has its own research centers in terms of ornamental fish and brackish water aquaculture. They continuously do research to improve the farming practices and prevention of pest and diseases for both these commodities. Universities and academia also quite interested in these two commodities therefore a significant amount of research is done by them as well. Figure 15 further illustrates the stakeholders in the shrimp and guppy value chains. In addition, many other entities are involved in the value chain of these two commodities. Brood stock for shrimps are always captured from the wild. This is usually performed by local fishermen and then they are sold to hatcheries.60 Most of these hatcheries are managed by large scale processors and exporters but there are handful that operate by themselves. Brood stock for shrimps is dependent on the open access resource of the wild it was questioned whether there is a decline in them. Breeders noted that they are not yet facing any difficulty in getting the necessary brood stocks. While nets are used to cover ornamental fish tanks, strings
60 On average a pair of brooders cost about LKR 1,500. However, a pregnant female will cost on average about LKR 3,000
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are woven to cover the large shrimp ponds. Nets could be bought easily from traders but working with strings is an art there are special skilled people doing that.
Photo 3: Guppy farming in cement tanks
A lot of construction is involved in faring both shrimps and Guppy. Constriction of water canals, water inlets and outlets, feeding bridges and buildings for workers are major components in a shrimp farming operation. Guppy are raised in cement tanks. Therefore, plenty of masonry activities are involved. Skilled carpenters are hence needed. Farming process of bot these commodities are capable creating plenty of such downstream jobs in the community. Figure 14 illustrates the stakeholder map for both these value chains and Figure 15 presents connections between the actors and their activities in the value chain.
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Figure 14: Stakeholder map for shrimp and guppy value chains
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Figure 15: Value chain functions map for shrimp and guppy
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4 . 1 . 4 Marketing networks and distribution channels
Shrimps are made for local consumption as well as exports. This research focused on shrimps that are grown commercially on ponds. In addition, the local consumption61 is comprised of wild captured shrimps as well. However, this is only around 10% of the local consumption as wild black tiger shrimps are a declining resource and an industry. Approximately 90% of the locally consumed black tiger shrimps are coming from shrimp farms. Large shrimp farms are usually owned by processors and exporters of fish. Therefore, their production directly enters in to the export value chain. After grading, whatever that does not enters in to the export distribution channel will come to the local market. On average 90% of the production from large farms enters in to the export distribution channel. Shrimps are exported using sea freight. However, with regard to smaller farms where they do not have their own processing and export operation, the wholesale market plays a major role in the marketing network. Considering an average small farmer (who have below 10 acres of land area in terms of ponds) will push close to 40% of its production towards the export distribution channels and the rest goes towards the wholesale and retail market. Retail market comprised of the local retailers (this include permanent buildings with fish vending operations to road side temporary fish stalls). Shrimps are transported to the processing factory with ice. At the processing factory they are frozen and stored. They can be stored up to 12 months if needed. However, distribution channels move faster and on average frozen for a maximum of four weeks before exporting. In the wholesale market shrimps are distributed with in several hours of capture. The wholesale market operates early in the morning and in the evening and the same day the harvests are sold. In the retail market they will be stored for a limited time, usually supermarkets will store them up to about one months, depending on the supply and demand. Road side and other retail stores will only keep shrimps about two to three-day maximum with ice. They do not operate with cold storages. Guppy is made for local consumption as well as exports as a live ornamental fish. As revealed by this research close to 80% of Guppy production goes as exports and Sri Lanka is one of the leading countries to export Guppy. Export of Guppy happens with air freight since they are transported in live form with oxygen. Just like in shrimp industry, there are larger producers (who has more than 15,000 square feet area in terms of constructed tanks) who have their own export operations and they hardly sell for local consumption. Almost all the local consumption comes from small scale producers. In terms of the demand, export demand is way higher for Guppy compared to the local demand since there is a significant competition in the local market between plenty of ornamental fish varieties. Guppy are transported in live form therefore oxygen is a necessity. Usually farmers have the capacity to pump oxygen based on the hours that they needed to be transported. This varies between 8 hours to 36 hours. Selling of guppy for local consumption happens at the producers place as well as at other small scale aquariums. However, nowadays ornamental fish like guppy are sold at roadside temporary places, as well as Sunday fairs. They are sold in polythene bags filled with water and oxygen and fish can survive up to a maximum of 36 hours in these bags. Close to 60% of these roadside sales are being run by the small scale producers themselves, but sometime middlemen buy from the farmers and sell. These roadside selling of Guppy accounts for about 15% of the total retail sales.
61 Visited Online on 28th April 2019: https://www.hindawi.com/journals/vmi/2010/679130/
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4 . 1 . 5 Stakeholder strategies
Shrimp exports are being done by a collection of well established companies. Export oriented black tiger shrimps farming started around 4-5 decades back by handful of companies. However there ae more than 10 leading export companies who are specialized in black tiger shrimp exports. These companies control the international demand hence they control the prices that farmers get. As explained earlier, all of these exporters have their own farmers as well, which are very large in scale. Therefore, they have their own supply at any given time. However, they have engaged with farmers as well in order to secure the supply. Forward contracts in terms of a formal agreement is not to be seen with other producers. However, there are buyback agreements between some exports and farmers. Some exporters operate as importers of fish feed and other input materials such as paddle wheels and nets. Therefore, these inputs are supplied to farmers on the basis that the cost will be recovered once the harvest is sold to the exporters. This has proved to be quite inefficient. Several exporters are in difficulty since farmers are not in a position to repay their costs with failed farming operations, especially due to white spot virus disease. Overall in terms of black tiger shrimp exports, a perfect competition does not exist, rather an oligopolistic completion can be seen. In terms of small scale producers, a perfect completion can be seen where they are clearly the price takers and they can easily enter and exit from the industry. Shrimp exports are linked to organized bodies such the National Chamber of Exporters and Sea Food Exporters Association of Sri Lanka. These associations work together in terms of export promotion, buying from local farmers and also attracting donor money and funded projects to the sector. Wholesale market is an almost perfect competitive market where fish is auctioned every day, morning and evening. Guppy exports are also well organized where they are being represented by Association of Live Tropical Fish Exporters of Sri Lanka. In addition, they are linked with Ceylon Chamber of Exporters as well. Exporters control the export demand and all of them are producers as well. They do buy some from other small scale producers as well which accounts for about 10% of their total exports. Guppy is highly dependent on the grade that is determined by many factors. Most exporters have developed their own and unique varsities with colour and other differences. Therefore, their export destinations are very specific. This leaves less room for them to work with other small scale farmers. Their own varieties developed at their own aquariums will go to their premium customers and what they buy from outside is usually for other export destinations which do not depend on specific varsities. Small scale producers target is mainly the local retail market where customers are not very specific about the fish species. Local consumer on the other hand will have little knowledge in differentiating a high value variety Vs a normal variety creating an indifference between what they see. Hence farmers work with different efforts trying to attract the local market using their own market mechanisms such as roadside selling.
4 . 1 . 6 Horizontal and vertical coordination
It is evident that exports are in a perfect coordination. Each exporter has its own production facility where majority of his exports comes from and then they work with farmers to secure their supply. They do not compete to secure supply outside their own, farmers have the opportunity to sell to anyone who offers a better price. Since processing and handling costs are very much standard, most of the exports goes to a handful of destinations (there isn’t a larger difference between the prices that exporters get, Japan is the favourite destination for most). The same level of coordination cannot be seen among the small scale producers. This has been one of the significant reasons to fail in dealing with while spot virus in shrimp farming.
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Small scale producers work around smaller lagoons, and do not invest much of proper inlet and outlet constructions rather they use only one outlet. Therefore, when farmer flushes their ponds, the same dirty water will be the input to the other farmer. They do not work on sedimentation tanks or overhead tanks so that the water can be treated before farming operations begin. This lack of coordination has created a never ending case of virus attacks and low harvest among small scale farmers. Coordination among other input suppliers such as fish feed, chemicals and medicines and other materials is less. For example, some traders offer discounts only if farmers would pay cash when buying fish feed. If buy on a buy back agreement or credit, fish feed is usually LKR 100 higher than when buying using cash. These price fluctuations are result of traders implementing their own sales strategies to maximize private profits. A limited number of organizations importing fish feed is an issue to have a competitive price. When most of these are fish exporters, farmers usually get attached to them with buy back agreements, but without forward pricing. In the guppy value chain, the highest coordination is among the exports as they have organized in to formal association as well. Most exporters have their own guppy variety developed so they need to work closely to see and monitor whether there are any duplications. They are usually awarded patents and prices on the varieties that they produce and this is done in close coordination with National Aquaculture Development Authority (NAQDA) National Chamber of Exporters (NCE) and Export Development Board (EDB). However, the coordination among small scale producers is less. Their main aim is the local market and it does not offer much incentives based on the grades and varieties.
4 . 2 F l o w s of Product
4 . 2 . 1 Value Chain Network Map
Major market destinations for shrimps are export market, wholesale market, and retail market. Retail market is comprised of local retail fish stalls, supermarkets and hotels and restaurants. In the black tiger shrimp value chain following distribution channels can be identified; 1. Farmer (small/large) ……………> Wholesale market ……………> Retail market …………> Retail consumer 2. Farmer (small/large) ……………> Supermarket ………………> Supermarket consumer 3. Farmer (small/large) ……………> Retail market ……………...> Retail consumer 4. Framer (small/large) …………….> Processor …………….> Own exports 5. Farmer/exporter …………………> Own processing ………….> Own exports Major market destinations for Guppy are export market and the local market. This is a simpler value chain and following distribution channels can be identified; 1. Farmer/exporter…………… > Own exports 2. Farmer (small) ……………. > Exporter ………. > Own exports 3. Farmer (small) ………….> Retail market …………> Retail consumer 4. Farmer (small) …………... > Retail consumer These two network maps be illustrated in the following figures.
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Figure 16: Network map for black tiger shrimp value chain
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Figure 17: Network map for Guppy value chain
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4 . 3 Location of ac t i v i t i e s
4 . 3 . 1 Areas of production, sites of marketing, places of consumption, ports for import and export
Black tiger shrimps are mainly produced along the coastal line from Negombo to Puttalam. Black tiger shrimps were produced in the eastern and northern provinces of Sri Lanka before the war. However, during the war period commercial shrimp farming was abandoned. New developments are visible in these areas again. Several large scale fish exporters have moved in to Jaffna district (from Northern province) and Batticaloa district (from Eastern province). Whatever produced in the northern and eastern province still comes to processing factories in Negombo and Chilaw areas. This is since processing capabilities are not well established in northern and eastern province areas. These processed shrimps are then exported mainly from Colombo sea port. Wholesale and retail markets are available in both northern and eastern province areas. However major wholesale and retail markets (specially the retail activities that involve road side selling) is visible in Negombo (Western province) and Chilaw (Puttalam district). Black tiger shrimps were once only limited to coast and adjoining districts. However, with developed road network retail sales have now penetrated to inner districts of Sri Lanka. This is being heavily supported by supermarket chains. Export of black tiger shrimps happen mainly through sea freight and Colombo is the main port for large scale exports. Shrimp grades are based on the size of the shrimp. However other criteria such as the color and appearance of the outer shell (without damages and spots) is also considered in the export market. Following main grades are identified based on the size. 1. Grade 1: Weight between 25-35 g 2. Grade 2: Weight between 13-25 g In addition, in terms of exporting following grades are also there: 1. Head on: 100% recovery 2. Head off: 63% recovery 3. Tail on: 55% recovery 4. P and D: Peeled and Deveined: 50% recovery
Guppy is mainly produced in the western province (includes Gampaha, Colombo and Kaluthara districts), Puttalam district, and in Kurunegala district. This is where the most export oriented production happens. However, Guppy is being produced at very small scale in many areas of the country, most these operations are for ornamental purposes, may be for village level retails. Guppy is being marketed mainly from the areas that they are being produced. A small fish tank is something that is available in most urban and sub-urban households as well. A commodity like Guppy fish is even available at rural and poor households as well since it is cheap (average LKR 8-11 a fish). Guppy is exported as live fish therefore they are exported using air freight. Therefore, Katunayake Bandaranayke international airport will be its port of exports. Map 1 below shows where the black tiger shrimp industry and Guppy industry is concentrated at. Guppy has many grades. The price will vary based on the size and the color. Some farmers and exporters work with more than 30 guppy varieties with differences in the appearances (mainly color) and characteristics of their fins and other body parts. However, in any give variety, two main grades are identified based on the size: 1. Grade 1: Size 3 cm and above (Usually this varies between 3-4 cm) 2. Grade 2: Size below 3 cm
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Map 1: Production of Black tiger shrimps and Guppy
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Photo 4: Black tiger shrimps and brooder
Photo 5: Guppy mature fish
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4 . 4 Quantification
Table 16 illustrates the scale of black tiger shrimp industry in the North western province and the eastern province. These are the two provinces where the production is concentrated at. Other areas Such as Negombo comprised of processing factories mainly, and limited number of operations are upcoming in the Eastern and Northern provinces by now. By 2017, 980 entrepreneurs were involved in shrimp industry and 993 of them operated licensed shrimp farms in the North Western Province. There were 3,048 operating ponds covering a total land area of 2,227 ha. In these areas 4,200 ponds operated for 1,200 crops using 450 million post larvae. Total shrimp production accounted for 6,050 tons. Eastern province has 44 licensed farms owned by 42 entrepreneurs. Approximately 175 ponds operated in 2017 and produced 322 Mt of shrimp using 17.6 million post larvae. In addition, there are close to 120 hatcheries that produces post larvae and majority is located in Puttalam district.
Table 16: Black tiger shrimp industry quantification based on shrimp producing areas
SHRIMP FARMS IN NORTH WESTERN PROVINCE (NWP) 2017 Item Status No of Licensed Shrimp Farms 993 No of Entrepreneurs 980 No of Ponds 3048 Total Extent 2227 Ha Total Farms Crops Operated 1200 Total Ponds Operated 4200 Total Post Larvae Used 450 Million Post Larvae Used for one Pond 107,000 Total Shrimp Production 6050 MT
SHRIMP FARMS IN EASTERN PROVINCE (EP) Item Status No of Licensed Shrimp Farms 44 No of Entrepreneurs 42 No of Ponds 175 No of PLs Stocked 17.6 Million Harvested Quantity 322 MT Source: Information provided by King Aqua Services Ltd.
Freshwater aquarium fish comprise of more colourful and striking species of guppies, swordtails, platys, barbs, tetras, angels, gouramies, and catfish. Out of these freshwater species exported from Sri Lanka, about 60-70% consists of famous fancy guppies - highly recognised in international markets due to the strength and diversity of the particular fish
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species when compared to other exporting nations. The Sri Lanka ornamental fish exporters association dates back to early 1970’s, which was established for the betterment and development of the industry. It was initiated with less than 10 members and the membership has grown to over 50 active exporters by 2015. The volume of exports by its active members is over 98% of the total export volume. There are about 40 regular exporting companies in Sri Lanka. Major buyers for Sri Lankan ornamental fish are the USA, Japan and the European Union. The growth rate of Sri Lanka's aquarium fish industry is a healthy 4.7% with our share of 2.7% of the US$ 412 million world market . Ornamental Fish exports earned LKR 2.2 billion in 2017. However, information on how many other producers are there is not available. All the exporters work with other small/large producers to secure the supply they need for their exports.
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5 ECO NOMIC AND FINANCIAL ANALYS IS
5 . 1 Contribution Analysis (distribution of margins along the value chain)
5 . 1 . 1 Black tiger shrimps
The following tables explain how margins are distributed among different actors in the value chain. In order to do this, different prominent distribution channels are identified first. Then margins are calculated for each and every stakeholder and activity along that particular distribution channel. From the starting point of cost of production to the final sale price, margins distributed are summed up to 100%. Analysis starts from a single cost of production value. Prices are based on 1 kg.
Table 17: Distribution channel Farmer …> Wholesaler ….> Retailer for shrimps
ITEM Farmer-Wholesale-Retail LKR USD Cost of production 600 3.33 Percentage 50.00 Producer grading and transport 5.00 0.03 Percentage 0.42 Producer margin 195.00 1.08 Percentage 16.3 % Producer price 800.00 4.44 Wholesale transport and handling 10.00 0.06 Percentage 0.83 Collectors margin 190.00 1.06 Percentage 15.8 % Wholesaler price 1000.00 5.56 Retailers transport and handling 7.00 0.04 Percentage 0.58 Retailers margin 193.00 1.07 Percentage 16.1 % Retailer price 1,200 6.67 Source: Own calculations based on information given by interviewees
In this distribution channel cost of production price point is LKR 600/Kg. Producer receives a price of LKR 800/Kg when selling to the wholesale market. Final retailer price is LKR 1,200/Kg. Producer incurs on average LKR 5/Kg in grading and transportation, Wholesaler incurs on average LKR 10/Kg in doing the same and retailer incurs on average LKR 7/Kg for handling and transportation. Producer keeps a margin of 16.25%, Wholesaler keeps a margin of 15.83% and the retailer keeps a margin of 16.08% from the total value contribution in the value chain.
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Cost of production accounts for 50% of the value contribution. In calculations 1 USD= LKR 180. This applied for all the calculations done for shrimp contribution analysis.
Table 18: Distribution channel Farmer …….> Supermarket for shrimps
ITEM Farmer-Supermarket LKR USD Cost of production 600.00 3.33 Percentage 46.15 Producer grading and transport 5.00 0.03 Percentage 0.38 Producer margin 215.00 1.19 Percentage 16.54 Producer price 820.00 4.56 Supermarket transport and handling 10.00 0.06 Percentage 0.77 Supermarket margin 470.00 2.61 Percentage 36.15 Supermarket Price 1300.00 7.22 Source: Own calculations based on information given by interviewees
In this distribution channel farmer receives a price of LKR 820/Kg and the supermarket selling price is LKR 1,300/Kg. Producer incur a cost of LKR 5/Kg in grading and transportation. Supermarkets incur LKR 10/Kg in transport and handling, they use cold lorries to transport. Producer receives a margin of 16.54% of the total value contribution where supermarkets keep 36.15% of the value contribution in setting the consumer price. Cost of production accounts for 46.15% of the value contribution. Farmers receive a price of LKR 850/Kg where their cost of production is LKR 600/Kg. Exporters FOB price (Freight on Board) is LKR 2100/Kg. Farmers incur LKR 5/Kg in grading and transportation. Producer receives 11.67% of the total value contribution. On average exporters have to spend 0.5 USD per Kg to manage stocks in cold storages at their processing facilities. Freight cost is on average 2 USD per Kg. This includes every activity from packing, storing, loading, transporting, documentation, freight insurance and working with a clearing agent to put stocks on the ship. Final FOB price is on average LKR 2,100/Kg which yields a healthy value contribution of 38.10% for the exporter. Both retail markets, supermarkets and exporters keep a higher margins compared to the wholesale market with their final prices. As mentioned earlier, all the processors / exporters have their own shrimp farms. They buy from other small or large scale farms when they are short in supply. Talking with the exporters it was noted that wholesale markets and other retail markets such as supermarkets sometimes offer higher prices for farmers and sometimes they run out of supply because of that. This was justified by farmers as well. In order to produce for the export market shrimps, have to be between 25-35 g or above. Raising shrimps to this size and quantity will increase the depth of the pond management operations and costs as well (there is a possibility to compensate the cost by price if things went well). It was noted that most farmers tend to produce grade 2 aiming
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the wholesale market since it pays them a bulk price without grading. For example, a farmer can push all his shrimps ranging from 13-25 g to wholesale market on a bulk price as long as they do not have issues of diseases. Other major point was that farmers need to keep shrimps for a longer time to get the export quality size. On average this takes 130 days. With water being polluted and prevalence of white spot disease, farmers tend to harvest before that and sell everything to the local consumption. In terms of producer prices, exporters tend to pay the highest per Kg. However, in terms of contribution to the total value in the value chain, farmers receive less contributions in the export oriented distribution channel.
Table 19: Distribution channel Farmer …….> Exporter for shrimps
ITEM Farmer-Exporter (Sea freight) LKR USD Cost of production 600.00 3.33 Percentage 28.57 Producer grading and transport 5.00 0.03 Percentage 0.24 Producer margin 245.00 1.36 Percentage 11.67 Producer price 850.00 4.72 Exporter handling and cold storage (Avg 0.5 $ per Kg) 90.00 0.50 Percentage 4.29 Freight cost (Average 2 $ per Kg) 360.00 2.00 Percentage 17.14 Exporter margin 800.00 4.44 Percentage 38.10 Exporter FOB (Avg) Price 2,100.00 11.67 Source: Own calculations based on information given by interviewees
5 . 1 . 2 G u p p y
Below tables illustrates the value contributions at dominant distribution channels for Guppy. The cost of production was taken as LKR 6/fish. Guppy are transported as live fish and they are exported using air freight. In terms of Guppy only two dominant distribution channels are examined where the farmers supply for exports and farmers supply for local retail markets. As shown in Table 20, producer receives LKR 11/fish in suppling to the exporter and FOB price for exporter is LKR 200/fish on average. Average freight cost is 0.7 USD per fish. Producer incur a cost of LKR 1/fish in grading and transportation and exporter incur LKR 10/fish in doing the same and additional storage with oxygen. Producer’s contribution to the total value chain is about 2% and the exporter’s contribution in terms of his profit margins is 26.5%. Freight cost accounts for 63% of the total contribution in the value chain and cost of production accounts for only 3%. Contribution of the freight cost is higher since these are exported in live form in
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water medium filled with necessary oxygen. Supply of oxygen can be up to a maximum of 36 hours.
Table 20: Distribution Channel Farmer…….> exporter for Guppy
ITEM Farmer-Exporter (Air freight) LKR USD Cost of production 6.00 0.03 Percentage 3.00 Producer grading and transport 1.00 0.01 Percentage 0.50 Producer margin 4.00 0.02 Percentage 2.00 Producer price 11.00 0.06 Exporter handling charges 10.00 0.06 Percentage 5.00 Freight cost (Avg 0.7 $ per fish) 126.00 0.70 Percentage 63.00 Exporter margin 53.00 0.29 Percentage 26.50
Exporter FOB (US $ 2.2 per pair) Price 200.00 1.11 Source: Own calculations based on information given by interviewees
As explained in Table 21 below producer price is LKR 10/fish when selling it to the local retail market. Retailers then use different mechanisms to sell them. They could be running a permeant aquarium as well as selling Guppy in Sunday fairs and roadside stalls. Retail price that consumer pay is on average LKR 15/fish. In terms of contribution to the total value of the value chain, producer’s profits accounts for 20% while retailer profits accounts for 13.3%. Cost of production accounts for 40% of the value contribution in the value chain. In terms of producer price, export distribution channel gives farmers a better price, LKR 1/fish above what retailer would pay. This is mainly because exporters will usually buy the highest quality fish. Retailer’s on average pay LKR 10/fish, but farmers mentioned sometime this price varies between LKR 7-11/fish.
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Table 21: Distribution Channel Farmer ……> Retail market for Guppy
ITEM Farmer-Retail LKR USD Cost of production 6.00 0.03 Percentage 40.00 Producer grading and transport 1.00 0.01 Percentage 6.67 Producer margin 3.00 0.02 Percentage 20.00 Producer price 10.00 0.06 RetaileLKR transport and handling 2.00 0.01 Percentage 13.33 RetaileLKR margin 2.00 0.01 Percentage 13.33 Retailer price 15.00 0.08 Source: Own calculations based on information given by interviewees
5 . 2 Gross Margin Analysis
Gross margin analysis for black tiger shrimp and guppy was done by collecting cost of cultivation and revenue information from farmers. For each commodity 8 farmers were interviewed to get the information. In order to be representative data collection covered both large scale and small scale farmers. Shrimp farmers who had below 10 acres of land were considered as small scale and who had above 10 acres was considered as large scale farmers. In terms of guppy farming, a farmer who operates with 15,000 square feet rank area is considered as a small scale farmer and who works on above this limited is considered as a large scale farmer. Calculations are done on the actual land size and are converted in per Hectare basis. Calculations are first done in LKR and then converted into US $. Conversion rate of 1 USD = 180 LKR was used for calculations. Table 22 depicts gross margin analysis for an average black tiger shrimp farmer and Table 23 presents gross margin analysis for an average Guppy farmer. Shrimps are harvested twice a year. One harvest is called a “Crop”. These calculations are based on a crop. Total fixed costs per ha accounts for 10,631 US$. Total variable cost per ha accounts for 8,924 US$. Therefore, gross margin per crop per ha is 3,600 US$. Breakeven quantity is 1,890 kg per ha per crop and the breakeven price is 3.36 US$ per Kg.
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Table 22: Gross margin analysis for average black tiger shrimp farmer
Total Total cost Unit cost No of cost/land Total cost per Cost components Unit in LKR units area/LKR per ha/LKR ha/USD FIXED COSTS
Land cost (Purchase) Per acre 100,000 15 1,500,000 247,100 1,373 Reservoir Pond Construction (Earth Work) Per total land area 200,000 1 200,000 32,947 183 Growout Pond Construction (Earth Work) Per pond 100,000 7 700,000 115,313 641 Oulet Structures Per pond 100,000 7 700,000 115,313 641 Drainage Canals Per total land area 100,000 2 200,000 32,947 183 Supply Canals Per total land area 50,000 2 100,000 16,473 92 Sedimentation Pond Per total land area 150,000 1 150,000 24,710 137 Environmental Mitigation Per total land area 40,000 1 40,000 6,589 37 Generator 150 Kva Per total land area 2,000,000 1 2,000,000 329,467 1,830 Electricity Supply Per total land area 1,500,000 1 1,500,000 247,100 1,373 Water Pumps (08" SubmeLKRible) Per total land area 325,000 2 650,000 107,077 595 PVC Items for the Water Pumps Per total land area 40,000 2 80,000 13,179 73 Switch GeaLKR for Water Pumps Per total land area 15,000 2 30,000 4,942 27 Paddle Wheel AeratoLKR 1 Hp Per total ponds 70,000 28 1,960,000 322,877 1,794 Switch GeaLKR for Paddle Wheel AeratoLKR Per total ponds 25,000 28 700,000 115,313 641 Office, Stores & WorkeLKR Temporary Huts Per total land area 50,000 1 50,000 8,237 46 Furniture and Fittings Per total land area 25,000 1 25,000 4,118 23 Kitchen Equipment Per total land area 15,000 1 15,000 2,471 14 Tray Bridges Per total ponds 10,000 28 280,000 46,125 256 Feeding Trays Per total ponds 2,000 28 56,000 9,225 51 Inlet Screens Per pond 20,000 7 140,000 23,063 128 Outlet Screens Per pond 20,000 7 140,000 23,063 128 Farm Internal wiring and Electrical Items Per total land area 400,000 1 400,000 65,893 366
Sub total Per land area 11,616,000 1,913,542 10,631
VARIABLE COSTS
Pond Preparation Per pond 40,000 7 280,000 46,125 256 Post Larvae Per pond 1 700,000 455,000 74,954 416 Prawn Feeds LKR/Kg 240 23,100 5,544,000 913,282 5,074 Lime/Dolomite Kg 10 70,000 700,000 115,313 641 FertilizeLKR Kg 250 1,500 375,000 61,775 343 Chemicals/Medicines Per pond 35,000 1 35,000 5,766 32 Probiotic Cultures Per pond 35,000 1 35,000 5,766 32 Electricity/Fuel Per pond 75,000 7 525,000 86,485 480 RepaiLKR and Maintenance Per pond 15,000 7 105,000 17,297 96
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Total Total cost Unit cost No of cost/land Total cost per Cost components Unit in LKR units area/LKR per ha/LKR ha/USD Transport Expenses Per pond 10,000 7 70,000 11,531 64 Harvest Expenses Per pond 30,000 7 210,000 34,594 192 WorkeLKR Salary Per month/per worker 30,000 42 1,260,000 207,564 1,153 Satff Welfare Per month/per worker 1,500 42 63,000 10,378 58 Lease Rental for the Land per annum Per pond/month 0 0 0 0 0 Legal/Licensing Expenses Per annum 10,000 1 10,000 1,647 9 Office & Misc Expenses per pond/month 2,000 42 84,000 13,838 77 0 Sub total Per land area 9,751,000 1,606,315 8,924
Total Variable cost Per land area 9,751,000 1,606,315 8,924
Total revenue Per land area 850 16,100 13,685,000 2,254,376 12,524
Production Per Ha 2,652 Gross Margin Per land area 3,934,000 648,061 3,600
Break even quantity Kg/Ha 1,890
Break even price Per Kg 606 3.36 Source: Own calculations based on information given by interviewees
Guppy is farming is done on an annual basis. Once fingerlings are obtained, they will come to saleable size in about 3-4 months’ time. From a give brood stock fingerling can be obtained every month. Therefore, on average saleable harvest can be obtained monthly for an about 8- 10 months per year from a given brood stock. Farmers stock them in cement tanks therefore calculations are done based on square feet area. For comparison purposes this is converted into ha. Total fixed costs per year per ha accounts for 248,381 US$. Total variable costs per year per ha are 31,556 US$. Total revenues per year per ha are 34,594 US$. Gross margin for year per ha is 3,038 US$62 and breakeven quantity is 811,429 fish per ha. Breakeven price is 0.03 US$ per fish.
62 It has to be noted that the farm area for Guppy farms consists of building, access roads and any infrastructure necessary for farm operation. Thus, a farm area amounting to 1 ha is the gross area and not only the area covered by the ponds.
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Table 23: Gross margins for an average Guppy farmer
Total Total cost Total cost No of cost/land per per Cost components Unit Unit cost units area/LKR Ha/LKR Ha/USD FIXED COSTS Land Ac 100,000 1 75,000 247,100 1,373 Tank constructions (100 square feet) 100 Ft2 50,000 250 12,500,000 41,183,333 228,796 Buildings (250 ft2) 250 ft2 100,000 1 100,000 329,467 1,830 Air supply unit Per land area 70,000 3 210,000 691,880 3,844 Oxygen tanks Per land area 30,000 3 90,000 296,520 1,647 Water pump Per land area 80,000 1 80,000 263,573 1,464 Broder stock Per land area 50 10,000 500,000 1,647,333 9,152 Nets Per land area 15,000 1 15,000 49,420 275
Sub total 13,570,000 44,708,627 248,381
VARIABLE COST Fish feed Kg 250 5,000 1,250,000 4,118,333 22,880 Oxygen replacement Times 2,000 10 20,000 65,893 366 Nets replacement Times 15,000 2 30,000 98,840 549 Medical and chemicals Per land area 15,000 1 15,000 49,420 275 Electricity Monthly 20,000 1 20,000 65,893 366 Labour Monthly 30,000 12 360,000 1,186,080 6,589 License fees Annual 4,000 1 4,000 13,179 73 Other miscellaneous expences Number 25,000 1 25,000 82,367 458
Sub total 1,724,000 5,680,005 31,556 (Total variable cost)
Total revenue LKR/Fish 7 360,000 2,520,000 6,226,920 34,594 Per months harvest Fish/month 45,000 Harvest per year Months/year 8 45,000 360,000 889,560
Gross margin USD/Ha 796,000 546,915 3,038
Break even quantity Per Ha 811,429
Break even price Per fish 6.4 0.035 Source: Own calculations based on information given by interviewees
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5 . 3 Contribution of VC to public sector finance and balance of trade
As illustrated in Table 14, value of exports of shrimps show a declining trend since 2000 figures. The industry has managed to come back in 2013-2014 period but 2015 was not successful in earning significant foreign income. However, from 2016 onwards, the exported quantities and export earnings have gone up again. From Table 1 it can be seen that marine and freshwater fishery products constitute 1.3 % of the overall GDP of Sri Lanka in 2017 and 18.5 % of the agriculture GDP with marine fish & aquaculture 16.1 % and freshwater fish & aquaculture 2.4 %. Sole figures about inland fisheries could not be obtained. Aquarium fish is a significant export earning source as well. Data reported by Export Development Board (EDB) shows a continuous growth in the industry in earning export income. Figure 19 shows these export performances. Highest export earnings were recorded in 2015 and declined in 2016 with significant increases in 2017 and 2018. Figures for 2019 are only up to March 2019.
Figure 18: Export earnings by the aquarium ornamental fish sector
Source: Export Development Board
From the same Figure it can be ascertained that the highest contribution from the aquarium fish exports to total merchandized exports was recorded in 2015. It declined in 2016 but now shows a steady increase.
5 . 4 V i a b i l i t y o f t h e VC in international economy
5 . 4 . 1 S h r i m p s
According to the FAO, the top five shrimp exporters to the international market in 2016 were India with 438,500 metric tons with a share of 14.5% year-on-year; Vietnam, with 425,000 tons, with a share of 18–20%; Ecuador, 372,600 tons with a share of 7.8%; Indonesia, 220,000 tons, with a share of 21%; and Thailand, 209,400 tons with a share of 22%. Exports from China also increased by 7% to total 205,300 tons. India’s top export markets included the US, Vietnam, the EU and Japan. For the second leading exporter, Vietnam, all volumes to its main markets of China, the US, the EU, the Republic of Korea and Australia demonstrated growth when comparing 2016 over 2015. For Ecuador, the third largest exporter, Vietnam remained its number one export market for shrimp. Compared with 2015, supplies to this market increased
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by nearly 39%, reaching 165,700 tons in 2016. The total export value was $2.6 billion, up 12%. Thai shrimp exports maintained growth for the third consecutive year. In volume terms, more than 40% of Thai shrimp exports consisted of processed shrimp (85,200 tons). The total export value for shrimp was $2bn in 2016. Most of the large shrimp markets showed positive growth in 2016 compared with 2015. The top markets recording increased imports were the EU, with a growth rate of 2%, USA with a growth rate of 3.2% and Japan with a growth rate of 4.6%. In Japan, stable consumer demand for shrimp throughout 2016 helped to maintain positive import growth compared with 2015. Aside from Ecuador, the USA remained the number one destination for the major shrimp exporters. In 2016, there was a record amount of shrimp imports by the USA, as well as declining domestic landings. Both figures together correspond to the USA total shrimp supply, which was approximately 3% higher than in 2015. It is interesting to note that imports of large and medium-large shell-on shrimp increased by 9% in 2016, reaching almost 90,000t, whereas imports of the medium sizes (31/40 to 51/60) were stagnant at 87,000t compared with 2015. For the EU market, consumer demand for shrimp in the EU remained relatively weak in 2016. Imports from extra-EU countries, which supply 73% of imports, increased only by 1.5% while intra-EU trade grew by 25%. In 2016, the US Food and Drug Administration rejected 133 shrimp consignments of shrimp destined to this market due to the existence of prohibited antibiotics. Shipments came from India (95), Vietnam (17) and China (15). This was the third highest number of refusals reported since 2002.63 Figure 19 explains the sea food exports to major markets by Sri Lanka for year 2018.
Figure 19: See food exports from Sri Lanka to major markets
Source: Export Development Board
This information suggests that black tiger shrimp value chain is relatively well-established, however facing several drawback in the last years with regard to exports in terms of rejections,
63 Visited Online on 28th April 2019: https://www.undercurrentnews.com/2017/08/29/report-india-worlds-largest- shrimp-exporter-in-2016/
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especially with the use of prohibited antibiotics. Sri Lanka is however not in the category of leading exporters of black tiger shrimps. However, exporters mentioned during the research that Japan is one of the favourable markets for Sri Lanka given the taste and colour of black tiger shrimps produced in the country. In year 2018, major market for Sri Lanka’s sea food exports was United States of America, Japan and Italy. In addition, Sri Lanka sea food exports goes to France, Netherlands, Hong Kong, Germany, United Kingdom, Canada and Vietnam. Therefore, Sri Lanka has already attracted a significant mix of export destinations, however it is important to increase the export volume and value.
5 . 4 . 2 Ornamental fish
Though the ornamental fish market's contribution to world trade in terms of value is small overall, the sector plays a relevant role in terms of poverty alleviation in developing countries and marine preservation. Coastal and riverine communities are able to utilize ornamental fish, which can be a sustainable and renewable resource, as a source of income.64 Sri Lanka has about 4.3% share of the global ornamental fish market which is around US$ 340 million. Sri Lanka exports to several major export destinations including United states of America, United Kingdom, China, Germany, France, Japan, Italy, Canada Russian Federation and Poland.
Figure 20: Aquarium fish exports from Sri Lanka and major ornamental fish exporting countries
Source: http://www.factfish.com/statistic- country/sri%20lanka/ornamental%20fish%2C%20live%2C%20export%20value
5 . 5 Competitiveness analysis
5 . 5 . 1 S h r i m p s
As mentioned earlier, in terms of export distribution channel, FOB price for 1 kg of black tiger shrimp from Sri Lanka stands at 11.7 US$. At the moment, by March 2019, world market prices
64 Visited Online on 28th April 2019: http://www.fao.org/in-action/globefish/news-events/details- news/en/c/469648/
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for black tiger shrimps are recorded at 11.8 US$ per kg.65 Therefore, Sri Lanka is in the world marker price range, in fact little bit below the average world market prices. It was noted earlier that India is the largest black tiger shrimp exporting country in the world. Therefore, Sri Lanka needs to compete with India in terms of world market prices. Sri Lanka and India both export black tiger shrimp to USA and Japan as their favourite export destinations. Black tiger shrimps are mainly done using sea freight. On average Sri Lankan exporter will have to budget 2 US$ per Kg in performing sea freight operations (this is as explained by the exporters). They account a bulk figure to cover all the export operations). Usually black tiger shrimp is kept in cold storage facilities depending on the scale and timing of operations, however it was mentioned that if needed they can be kept up to10-12 months in cold storage. Therefore, exporters have to incur on average 0.5 US$ per kg in handing cold storage facilities. With economies of scale it can be assumed that the sea freight cost for an Indian exporter is less than of the Sri Lankan exporter. On line data on Indian exports suggests a FOB price range from 9 US$ to 14 US$ per Kg . Therefore, India on average is having FOB prices close to world market prices: 11.5 US$ per Kg. However, information is not publicly available to carry out a proper Export parity price analysis comparing Sri Lanka and India. This information for Sri Lanka was discussed earlier.66 While this information suggests that Sri Lanka holds the competitive edge in terms of FOB prices for black tiger shrimps, it does not provide a concrete justification to compare Sri Lanka to other exporting countries of black tiger shrimps. This is because Sri Lanka is a small exporting country while India and other countries are large exporting countries with larger world market shares. Therefore, as explained by the international trade theories, Sri Lankan exporters have little capacity to influence the world market prices with its production or domestic trade policies.67 Therefore, Sri Lanka needs to be specialized in its production, either cater to a niche market like Japan where Sri Lankan black tiger shrimps are heavily demanded or engage in value addition such as saluted or smoked shrimps.
5 . 5 . 2 Ornamental fish
Guppy export prices or the FOB prices vary based on the variety. Guppy is one of the most demanded ornamental fish varieties and there are many coloured and sized fish all around the world. Therefore, prices vary based on these characteristics. For example, FOB for a regular guppy variety will be between 1-2 US$ per fish and this will be increased up to 5-7 US$ per fish based on its characteristics.68 As mentioned earlier, a regular Guppy fish will be at a FOB price of 1.1 US$. Guppy export operations are based on air freight. Fish that is exported from countries like Thailand, Indonesia, Vietnam and Singapore have FOB prices for regular Guppy fish ranging from 0.3 USD-1.5 US$ per fish . Therefore, in terms of FOB prices Sri Lanka is well within the competition from other major exporters.
65 Visited online on 28th April 2019: https://www.indexmundi.com/commodities/?commodity=shrimp
66 Visited online on 28th April 2019: https://www.zauba.com/import-tiger+shrimp-hs-code.html
67 Visited online on 27th April 2019: http://internationalecon.com/Trade/Tch90/T90-3.php
68 Visited online on 27th April 2019: https://www.zauba.com/import-live+fish+guppies-hs-code.html
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Photo 6: High quality Guppy exported from Sri Lanka
Sri Lanka has a world share of 4.3% in terms of ornamental fish exports . Sri Lanka ranked at No 10 among the leading ornamental fish exporters of the world. This limited information suggests that Sri Lanka holds the competitive advantage in terms of the world exports, since in this situation Sri Lanka is recognized as a large country exporter. This shows that Sri Lanka has the ability to influence the world market prices of Guppy and other ornamental fish. Therefore, domestic policies such as production subsidies to cut down the cost of production, removal of import taxes on essential inputs and reduction of freight charges and taxes will help to reduce the FOB prices.69 This will have a significant impact in attracting more export market share. Best examples are countries like Singapore and Vietnam who are small in size but larger in terms of export trade, thus influence the world trade.70 A proper comparison between Sri Lanka and other major ornamental exporters such as Singapore, Thailand and Indonesia using export parity price analysis would shed more light on the competitiveness of Sri Lanka in terms of the Guppy value chain. However, this is constrained by the limited data availability.
69 Visited online on 28th April 2019: http://www.factfish.com/statistic- country/sri%20lanka/ornamental%20fish%2C%20live%2C%20export%20value
70 Visited online on 28th April 2019: http://www.tradeready.ca/2016/topics/researchdevelopment/10-small- countries-major-players-international-trade-world/
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6 TECHNOLOGICAL INNOVA TION
6 . 1 Overview and quality control system
Operations within the value chain for aquaculture products are following the high standards required by demanding export markets. Shrimps and prawns are traded from the farm till the final consumer in an icy environment. Shrimps and prawns are killed alive on the farm by ice and subsequently stay in ice till the produce reaches the consumers on market. Sri Lanka has a legal structure for quality control and HACCP is mandatory for fish products processed in Sri Lanka for export since 1999. HACCP for export-oriented fisheries sector is introduced under the Fish Products (Export) regulations, 1998 made under the Fisheries and Aquatic Resources Act No 2 of 1996. The Act makes it compulsory for export-oriented companies to be approved. The DFAR is the competent authority for exporting fish from Sri Lanka. DFAR implements fish quality control and audits through the Fish Product Control Unit established in 1999. They inspect the fish processing facilities and reports to the Competent Authority. CA approved the accredited testing laboratories and consequently the whole value chain is under the standard with farms, equipment, processing, laboratories and inspection all under the CA. In fisheries for export SLSI aligns with international standards. In the aquaculture sector a strong coordination and cooperation between public and private stakeholders is existing.
6 . 1 . 1 Fish processing in Sri Lanka
Many different food processing methods have the potential to be used in minimal processing fish and fish products. either alone or in combination with other methods. It is important to have very minimum damage for the fish, proteins and other nutrients after processing. Food irradiation is one such method that has been known for a long time but has not gained general acceptance. However, in the last decades some novel non thermal technologies have been emerging which look promising for minimal processing without the detrimental effect of heat. These are methods like high pressure processing, high electric field pulses treatment and other less investigated methods like oscillation magnetic field treatment and use of light pulses for sterilization. Modified atmosphere packaging can also be considered a minimal processing method . There have been many studies on the effect of high pressure on reduction of microbial growth and sterilization of food and beverages (Johnson and ZoBell1949, Jaenicke 1981, Hoover et al. 1989, Cheftel 1995). They show that inactivation of microorganisms by high pressure depends on the pressure level and the duration of treatment in order to reduce bacterial growth in many kinds of food like milk, meats, fruits and juices. A few studies have been done specifically on the effect of high pressure on inactivation of microbes in seafood products. The effect of high pressure on total count of bacteria in tuna and squid samples treated with 450 MPa for 15 minutes at 25ºC reduced the plate count between one and two log cycles. This treatment was not sufficient alone to reduce effectively or sterilize the sample (Shoji and Saeki 1989).
6.1.1.1 Impact on quality during Processing
Flavour, taste and texture are important quality parameters regarding consumer acceptance for seafood products. These quality parameters are affected during storage by many factors that can reduce the freshness or spoil the product. These factors may involve protein
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denaturation, enzyme activities that produce off flavour compounds and lipid oxidation. The consequences can be dripping of the fish muscle leading to dry and tough texture, rancidity and off-flavours. High pressure will affect these factors in such a way that some of the quality parameters will be improved compared to other preservation methods and others will decrease compared to fresh products. Another modern technology which is very effective and having minimum nutrients and protein denaturation during processing is irradiation which is the application of gamma rays and high speed electrons which destroys the microorganisms instantly. IQF processing is the most common method used in Sri Lanka in most of the fish processing factories. Freeze drying is the most modern method of processing which gives the best quality product but not yet practiced in Sri Lanka.
6 . 1 . 2 F ish processing and canning
Canned fish is one of the major fish and fishery products imported by Sri Lanka annually. It was around 32% of the total quantity of fish and fishery products imported and 27% of the total value of fish and fishery products imported in 2016. Sri Lanka has imported 37,089 Mt of canned fish by spending 35,173 LKR million in 2016. Due to higher expenditure in importing of canned fish annually Ministry of fisheries and the private sector had jointly initiated canning of fish locally in recent past. The first canning factory was established and started operation in 2012 in Galle with the capital investment and daily production capacity of LKR 840 million and 10,000 units of cans respectively. In the same year Topic engineering supplies and service (TESS) group was also established and started operation a canned fish factory in Paliyagoda with the capital investment and daily production capacity of LKR 170 Million and 24,000 cans respectively. There were 6 functioning fish canning companies and the total number of cans produced in 2016 was 4.8million.
6 . 1 . 3 Shrimp processing
The machinery and equipment in the shrimp or prawns processing plant are input conveyor , cleaning m/c s, material washer, intermediate belt.in the preparation section. The shrimps are transferred from the delivery van to bins with ice and water or to input conveyor belts which will be washed through spray washer to remove all impurities mud and part of bacteria from the fish. This is again passed through a circulated bubble water washing system which removes all the dirt and foreign matter from the prawns. From the washer it is transferred to preliminary processing area. There are distribution conveyors also which distributes prawns to cleaning section, removing the waste, and also carrying the cleaned prawns to the next section. Preliminary processing conveyors, Processing tables, waste disposal conveyors etc., are in the preliminary section. Finished product gathering belt, shrimp head and shell collection belt are also part of this section and from here, s Shrimps/prawns are distributed to workers through conveyors,. There is waste collection trough the collected waste is removed through a conveyor to waste disposal trucks. Once the shrimps are cleaned it passes through bucket elevator to next section for peeling, de-heading and deveining etc. depending on the type of product to be packed. Shrimps are distributed to workers in trays. Central belt for washed cleaned prawns from washer, and side belts for shelled prawns etc. The next step is to take to peeling area ,with peeling conveyors, and central belt which takes the shrimp to packing and freezing area. The
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products are packed in plastic bags and then into cartons of 1 kg, 2 kg, 5 kg size etc. according to customer requirement. The packed cartons are frozen in blast freezers. The product for plate freezers are first arranged in aluminium trays and loaded into plate freezer trays, then frozen to -40 C and then filled in plastic bags, packed in waxed cartons and stored at -20 C in freezer rooms till it is despatched. Designed to belts of different width, the cleaned shrimps are spread on the conveyor belt evenly before it is fed to the freezing chamber. These can be tunnel freezers or blast freezers. There are nitrogen immersion freezers also available which very efficient and faster.
6 . 2 Technologies used in fish processing
6 . 2 . 1 IQF Processing
This is one of the most efficient method used in frozen fish, meat and vegetables. In this process shrimps, prawns or other fish are graded according to size grading (10,20, 30 ,40 pcs per kg). After the prawns, shrimps are graded it may be blanched for 4-5 minutes. The time of blanching varies with type of fish and grade. Many processors do not blanch the prawns before freezing. This is one of the most efficient method used in frozen shrimps, prawns ,any other small or medium size fish. After blanching the product is cooled by using chilled water or cold air and then transferred to the freezing unit (vacuum freezer, tunnel freezer, plate freezer, blast freezer, Immersion freezer) to bring the temperature of the product down to -38 to -40 C. The cooling is done in such a way that the product does not lose the shape and size, freezer burn. Some of the products are cooled slowly and some of them takes few minutes to achieve the temperature. Once it is frozen the products are packed in polythene bags. The Products after packing is stored under low temperature in a cold room at -20 to -30 C.
6 . 2 . 2 Quick freeze preservation techno l o g y :
Food preservation technologies have always been scientifically challenging leading to evolution of engineering expertise in crystallizing precision of methodologies that have extended shelf life over longer timelines, made food safe for human consumption and effectively delay the organic biodegradation of various food types and substrates. European contemporary Group have successfully researched and diversified into food preservation technologies while leveraging on the legacy of excellence in agro based equipment
Figure 21: Process flow chart for the Integrated Quick Freeze
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Product mix diversification in allied food an industry has been a strategic move by the Contemporary management while attempting to accelerate or even shifts the trajectory of the growth curve amid the debilitating macro influences in the immediate past decade. Contemporary forays into food preservation technologies like IQF (integrated quick freeze), Canning and the otherwise esoteric preserve of differentiated food science endeavours of MRE (Meals ready to eat) have been marked with intense research capabilities and the intrinsic strength of the Group engineers, scientists and equipment designers to aggregate the learning coordinates and assimilate knowledge for consolidation into sustained product leadership.
6 . 2 . 3 Drying or Dehydration
In this process the products (fish, meat and vegetables) are washed and passed through the process, blanching or mild cooking to remove excess water and to inactivate the enzymes, and cooling etc. During blanching some sulphiting treatments may be done increase of fruits and vegetables to maintain good natural colour for the product. Once the product is ready for drying it passes through various types of driers such as continuous tunnel drier, vacuum drier, freeze drier, tray drier, microwave drier, etc.. Depending on the type of drying method the yield and the quality of the final products change. For freeze drying is the best method to maintain the shape and flavour, colour of the final product but is much more expensive than the other methods of drying. The products after drying reaches to a moisture content of about 8-9% which is good to keep the product for one year. The products are packed in moisture resistant packages –aluminium foil containers, multilayer packages, waxed cartons.
6 . 2 . 4 F reeze Drying
Freeze Drying process is the most modern method of drying a fish, meat ,eggs, or any other food stuff, which is practiced in the food processing sector. In this process the fish, meat, egg, fruit, vegetables or any other fresh product is frozen to below zero temperature (-10C) and then the food is subjected to a drying process to remove the water from the food as vapour which is called as sublimation. The water in the form of vapour passes through the small pores of fruit cells without damaging the shape of the fish, meat egg, vegetables and fruits. In normal heating and dehydration, the shape and size of product is reduced (prawns, shrimp, meat ,vegetables or fruit), the nutritional value is lost to a large extent as the high heat destroys, vitamins, proteins and other ingredients in the food. In freeze drying as the water is removed as vapour through sublimation almost 90 % of the nutritional value in the food is retained after drying and the product shrimps, prawns, crabs, looks like fresh fish, remains crispy, flavour, colour aroma are retained after freeze drying process. The size and shape of the fish or the foods does not change and it looks as good as fresh fish (prawns, shrimps, sardines, mackerel, crabs, egg powder ,squid, cuttle fish and other varieties of fishes and fruit /vegetables) The shelf life of the product is much better than frozen, dried or concentrated foods. Fish varieties (prawns, crabs, lobsters, other sea foods), herbal products, honey, beef, coffee, tea etc are well stored after freeze drying. Vegetables such as broccoli, cauliflower, parsley, mushroom, beans, asparagus, onion ,celery, carrots, tomato, pepper etc are very suitable for freeze drying. The key advantages of Freeze Drying (LYOPHILISATION) technology is: • Faster drying with less energy - freeze drying method reduces drying time by up to 15- 20% while consuming less energy.
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• Low temperature operation - uniquely designed features allow for low temperature operation cycles which are crucially important for preserving the natural integrity of the freeze dried product. • Food safety friendly - great care and determination was put into designing a system that makes accessing and cleaning every component very easy, ensuring bacteria or residue will not get entrapped on any equipment or food surfaces. Only design with fully accessible and cleanable machine interior.
Photo 7: Modern freeze drying unit for shrimps
6 . 2 . 5 C a n n i n g of fish and fish products
This is one of the oldest methods of processing but is still used in preservation of food like fish, meat, fruits and vegetables, especially for long period of storage. The fish ,any variety, like tuna, prawns ,shrimps, mackerel, sword fish, Tilapia, Nile perch, are prepared according to required sizes(Prawns shrimps, sardines, mackerel and other small fishes are canned as whole), blanched and cooled through a cooling tunnel or under cold water spray or dipping in cold water. Various types of blanchers and cooling systems are available in the market. The product is then filled in hermetic containers (mostly tin cans or aluminium cans ) and filled with brine or tomato sauce etc. as a covering medium. The cans are passed through an exhaust box to remove the air from the cells of the food and then cans are sealed using a can seaming machine which keeps the product air tight. The cans are then subjected to a sterilization process in an autoclave with set time and temperature controls under vacuum. The modern sterilizers are controlled automatically. The cans are cooled inside the autoclave and then dried and stored under ambient temperatures .The product has a shelf life of 2-3 years. High Osmotic pressure preservation works through withdrawn of water from microbial cells when they are placed in solutions containing large amounts of dissolved substances such as sugar or salt as a result of this water loss the microbial metabolism is halted, and the water activity is stopped or controlled. High osmotic pressure may inhibit microbial growth but it cannot be destroyed. Yeasts and mould are more resistant to osmotic pressure. For example salted fish, meat and pickles are rarely affected by bacterial action because of their higher salt content. But it is uncommon to find mould growth on their surface if exposed to air. During this period canning of fruits and vegetables and meat and fish were also in practice. Irradiation is a potential processing method for foods. Although no irradiated food was on the market in1958—in fact, the law did not permit it—millions of dollars have been spent on
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research on irradiation. Just as X-rays can be used to destroy cancer cells in the human body, gamma rays or high-speed electron scan be used to kill micro-organisms and insects in foods. Irradiation does not make the foods radioactive. Low radiation level s are not harmful to foods and body but is very effective in preservation as it destroys all microorganisms.
6 . 2 . 6 Ready to Eat product in Retortable pouches
This is another new technology now developed for packing of fish , meat poultry fruits and vegetables , rice , cereals for long shelf life and easy handling and transport. The products are ready meals, meat ,fish or cooked vegetables etc which are filled in multilayer foil pouches after proper cooking with required ingredients. The pouches are sealed under vacuum conditions and it is sterilized in an autoclave under set time and temperature. The product shelf life is more than one years. Any vegetables or meat curry etc can be packed in this modern system of packing. This is a fully automatic line except for the preparation of food items to be filled in pouches.
6 . 3 Requirements for qualit y management systems in aquaculture value chain
6 . 3 . 1 Legal framework and regulations
Sri Lanka has a legal structure for quality control but many Acts are out dated and not in compliance with international best practices. Sri Lanka has no Central Body that coordinates or monitors market surveillance. Various bodies are incorporated in the system such as for example CAA and Sri Lanka Standards Institute (SLSI) are both implementing market surveillance for fruits. Regulators do not use product certification bodies accredited by Sri anka Accreditation Board (SLAB) or another international accreditation organisation. In addition, responsibility for technical regulations for fruits is with Ministry of Health, Nutrition and Indigenous Medicine and Min of Agriculture. Standards for fish and aquaculture are prepared by SLSI and NAQDA, Department of Fisheries i.e. Food, Agriculture and Test Methods. SLSI aligns as much as possible with international standards and is member of ISO and IEC. Metrology is important for agriculture standards and in Sri Lanka under Department of Measurement Units (MUSSD). This body also contains the National Measurement Laboratory which executes the calibration function in Sri Lanka. Conformity in Sri Lanka is mostly through the SLSI mark and not through international accreditation. Finally, none of the market surveillance bodies perform accredited inspections with many bodies understaffed and underfunded. Quality of service has also been lacking in some particular areas of the National Quality Infrastructure (NQI), such as metrology and conformity assessment. A producer of fish products for the domestic market or export would have to navigate between all these institutions to ensure compliance with regulations, and thus lose on efficiency in a competitive international market. Further, a start-up facility will find this situation a legal impediment to function and survive. When looking at the list of institutions, this situation is confirmed by an obvious lack of any coordination body or function among these institutions. In addition, not all key NQI bodies report to the same ministries, which misalign planning and resourcing.
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6 . 4 Laboratories and quality control system
The determination of critical control point is to know the critical point between safety and insecurity; food quality would be safe only when all the critical control points are controlled in the safe range. To determine critical control points is the core of HACCP, therefore in the early planning stage, the selection of CCP should follow scientific methods, CCP should start from farm level. Quality Control means compliance with specification. It includes sampling, inspection and testing to ensure that the materials comply with specifications (and also control of product which does not conform to specifications). This includes inspection of raw materials, temperature controls, weight controls, organoleptic testing, etc. Quality assurance is to ensure effectiveness of the various control systems. An internal system of audit would check that the control on incoming material is in place and effective. An audit of this type would form an integral part of formal quality management system such as ISO 22000. Good Manufacturing Practices-This may be considered as two complimentary functions such as effective manufacturing operations and effective quality control. It includes elements of equipment design, cleaning and sanitation, product specifications, HACCP and Auditing techniques which are the principles and practices for the safe processing of foods). Food quality and safety are the major concerns of the food industry in the recent days. There are many food industries coming up every day but without proper approvals from the licencing authority like NAQDA, Fisheries Department, Export Development Authority. Specially fish processing is a very sensitive sector when it comes to fresh frozen, processed fish and prawns. A number of surveys shows that consumer awareness of the quality of their food consumed are increasing day by day. The extensive level of microorganisms and growth promoters, residues of pesticides and chemicals (e g:--mercury histamine ), and dioxin antibiotics cause great concern among consumers of fish. It is very important to evaluate the importance of Hazard Analysis and Critical Control Points (HACCP) in fish and other food processing plants.
6 . 4 . 1 H azards in the cold chain for fish
With the hazards identified it is possible to determine critical control points so that food is safe. To determine critical control points is the core of HACCP, therefore in the early planning stage, the selection of CCP should follow scientific methods, CCP should start from fishing area and fish farm level. Quality Control means compliance with specifications. It includes sampling, inspection and testing to ensure that the materials comply with specifications (and also control of product which does not conform with specifications). This include inspection of raw materials, temperature controls, weight controls, organoleptic testing. Quality assurance is to ensure effectiveness of the various control systems. An internal system of audit would check that the control on incoming material are in place and effective. An audit of this type would form an integral part of formal quality management system such as ISO 22000.
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Table 24: Hazards in the cold chain for Fish
Chain operations Potential hazard Supplement dangerous additives or chemicals or pesticides, design mix and impurity; environmental pollution of origin points ( Aqua culture farms, Collection centres), deficiency of facilities and equipment; lack of scientific technical guidance and safety supervision programs Storage cross-contamination; damage, decay, pollution and reversal of the goods; Improper controlling of temperature and dangerous working methods; loss and damage of goods. Mixing of produce of varying storage temperatures. Transportation Inappropriate transporting arrangement; Poor quality reefer containers, temperature control, truck efficiency (refrigerated and insulated trucks); Loss and damage of products; cross- infection Consumption Poor Storage facility, and Temperature control in consumer sites like supermarkets, wholesalers, retailers etc. improper handling and storage by consumers after purchases.
Critical Control Points in HACCP for Prawns/Fish. CCP1 Fish collection and transport. a) Hazards-, mud contamination from ponds, bruises, sea and pond water contamination from unclean transport vehicle., b) Preventive measures- cleaning, clean reefer vehicle for transport, crates, cool box for storage during transport) Limits- Eliminate the above. Corrective action- Awareness and training to fishermen training for collection supervisor, collection and transport of fish in crates, cool boxes. CCP2 a) washing and cleaning; b) hazard-physical contamination; soil, mud from pond, sea. c) preventive measure-screening, good housekeeping etc.; d) limits-no contamination; e) corrective action - cleaning, pre-screening, person-responsible production, maintenance manager, supervisor. documentation- audit reports, pest control, cleaning schedule etc. CCP3 a) Peeling, de heading, deveining and cutting, b) Hazard –Biological, c) prevention-use of gloves, other protective covering, minimum handling, storage time, good housekeeping, proper storage, Control- as per limits. e) Monitoring-washing, hygiene audits, Q.C., checks, corrective action-increased supervision, cleaning schedule, person responsible-Q.C. department, and supervisor, manager) Documents-Lab reports, Standard manuals, raw material registers. CCP4-Sizing, a) hazard-biological and chemical’s, b) limits - as per specifications, c) preventive measure-proper equipment –grader, monitoring-visual inspection, supervision, d) corrective action-code of practices, cleaning schedules, e) person responsible- supervisor, Q.C. personnel. f) Documents-lab reports, standard manual. CCP5-Blanching,cooling b) Hazard-biological and chemical’s) Prevention-ensure correct temperature and time for cooling/blanching.) Limits-as per specifications. e) Monitoring- supervision, right measuring, dozing(chlorine) equipment, calibration etc.) Corrective action- QC checks to see if time and temperature is controlled g) Person responsible-Process supervisor, Documents-QC reports, batch production sheets.
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CCP6-Cooling after blanching. Corrective action-Physical –proper cooling and draining is effected before entering the freezer/ drier. Person responsible- production supervisor. CCP7-Canning, Freezing, Hazard-Biological Prevention-use wholesome raw material, use corrects time and temperature, use clean equipment’s. Limits- as per specifications. Corrective action-proper storage of raw material, cook at required time and temperature, discard products not meeting microbial specs. Person responsible- QC department, process supervisor’. CCP8-Filling, sealing in food grade poly bags. Plastic, containers, cartons other packaging materials tamper proof seals. Hazards-biological and physical. Prevention-calibration of filler with weight Limits - no under filled bags or containers, Monitoring-visual examination of plastic bags or containers before packing. f) Corrective action- repacks under filled bags and unsealed bags and also defective seals. Person-responsible-Packing section supervisor, production supervisor. CCP9- Labelling and coding. a) Hazard-wrong coding, wrong printing on the bags. Prevention- supervision, printing of labels according to specifications of bureau of standards. CCP 10- Packaging-Right selection of packaging for dry products, moisture resistant bags. Hazard- Moisture absorption, caking, lump formation, off flavour and colour changes, undesirable odour and flavour formation. Corrective action- Right packaging material with moisture resistant materials, The HACCP is complete with a quality manual (covering all quality issues and making references where necessary including procedures that are critical to safety, legality and quality) containing an outline of working methods and practices and a production manual (covering all aspects of raw material receipts, selection, grading, storage, production and packing in the entire process of food processing). These documents should be available to the senior staff and production manager at all times. Any licensing authority should have access to quality and production manuals. Good manufacturing practices are recommended with the goal of safeguarding the health of consumers well as producing quality products GMP guidelines are not prescriptive instructions on how to manufacture products. They are a series of general principles that must be observed during manufacturing. When a company is setting up its quality program and manufacturing process, there may be many ways it can fulfil GMP requirements. It is the company's responsibility to determine the most effective and efficient quality process that both meets business and regulatory needs.
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7 SOCIAL ANALYSIS
7 . 1 Working Conditions in the VC acceptable
Black tiger shrimp farming activity carry a significant labour cost. All the farms even ones that were below 10 acres of land has at least two full time employees allocated. The usual norm among farmers is that at least one dedicated labour is needed to manage one pond through its life cycle. Owners almost all the time build a separate building for them to stay and manage their supplies for cooking and drinking purposes. While some farms have well established clean buildings with proper facilities some buildings have only the most needed things. During stocking time working conditions become harder as farmers have to stay up to stop poaching by bird feeding and theft. Harvesting times workers use all the protective gear since they have to safe guard their hands as well as the catch. Harvest is transported with Ice packed boxes in normal lorries or in cold lorries, depending on the distance they travel and the buyer (buyer comes to the farm and buy). In the processing factory things are more sophisticated as well as organized. Larger freezers are available for long time storage and people wear protective as well as sanitary gear in working with black tiger shrimps. People who work in processing and exporting operations are permanent employees. Most larger farms have permanent employees as well, however a significant number of casual/seasonal workers are with the farms. Child labour is not involved in any of the activities along the value chain. Guppy farming is done in smaller cement tanks that can be easily managed. Farmers have to cover s smaller area and all these tanks are in shade. Therefore, working environment is smaller and less heat stress for workers. Large scale producers/exporters have permeant staff working for them. Farming activities at small scale level involves some casual/seasonal labour. Handling live fish needs to be done with utmost care, therefore Guppy industry involves skilled breeders and handlers. These breeders breed award winning varieties. Child labour is not involved in the value chain activities.
7 . 2 L a n d and water rights in VC acceptable
Most lands used by shrimp farmers are privately owned lands. They usually come down from generation to generation. When these farms are sold, they are most of the time being bought by a person who is interested in doing shrimp farms. Therefore, some lands have been traded among several shrimp farmers already. Some large and small scale farmers work on government owned land under a permit scheme. These lands are given for a specific time period, usually for more than 30 years. Farmers pay tax every year to the local government authority based on the size of the land. This is a pre-requisite to get the management license from NAQDA to start operations. Shrimp farmers use lagoon water. This is a common resource for all the shrimp farmers along that lagoon. The usage of lagoon water carefully evaluated by NAQDA in issuing them management licenses, however use of common water without proper purifications have resulted in spreading diseases. Guppy farming is based on smaller lands and almost all of them are privately owned or rented out from private owners. Guppy farming uses inland water therefore most of them either work with government water supply system or with a private water well-constructed on the land.
7 . 3 Gender equality i n V C
Women involvement both in black tiger shrimp farming and guppy farming is most prominent at the processing level before exports. In shrimp farming labour activities are more intense and women are basically not involved in those activities. Men have to stay overnight awake as well to manage poaching. Some bigger farmers have women in their labour crew to manage basic
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labour operations such as cleaning and cooking. Feeding, harvesting, water management and all other heavy duty work is being done by men. Some women are involved in record keeping/invoicing activities as well. At the processing factories, women lead the operations in cleaning, grading and packing. Every day they have to work with fresh as well as frozen shrimps that comes out of the cold storage. Management of cold storages and lorries is mainly done by men. Women do work in office environments and also supermarket retail stores. Guppy industry is mostly managed by men. Breeding, stocking and harvesting and then processing for live exports is being spearheaded by men. Women most of the time involved in record keeping activities and sometimes they take over feeding operations.
Photo 8: Women working in a shrimp processing factory in Chilaw
7 . 4 Food and Nutrition conditions i n V C a c c e p t a b l e
In terms of food and nutrition conditions, shrimps provide a good protein source to farmers as well. Most farmers on average keep apart around 200 kg for their own consumptions and to distribute among relatives and friends. These shrimps are usually smaller ones that cannot enter in to the export, wholesale or retail market. It is too costly for them to consume the grade 1 product. Ornamental fish does not apply to this situation.
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7 . 5 Distribution of social capital over the VC
Farmers do have their farmer organizations sine shrimp farming based on a crop calendar. This crop calendar is issued by NAQDA and registered farms have to work according to that (license is necessary to carry out farming operations). Therefore, stocking is done as a clusters and these farmers will have to work together in sharing a common lagoon. Farmers work together in sharing other information as well, especially the market prices, input information and managing pests and diseases. The same level of organization is evident at the processor/exporter level. Guppy farming is also well coordinated in terms of exporter level. However, farmer organizations at the next level is not available and they work on isolation. There are some producers that have established good linkages with exporters and have benefited from those relationships. At the same time there are farmers who struggle even to get a financial support from a financial institution to expand their operations.
7 . 6 Social infrastructure and services acceptable
Ending of the war had greatly benefitted shrimp industry. New roads have been built to cover northern and eastern provinces and more coastal and lagoon lands are being open for farming activities. Several exporters have already using these lands in terms of capturing brood stocks and producing post larvae. There are several entrepreneurs who have started farming operations at larger scale. NAQDA is also having its strong presence in these regions making it easy to expand in these areas in terms of production. However, lagoon water keeps on degrading in other regions, especially in the north western province regions. It was noted that most farms regardless of its size is continuously getting affected by diseases due to polluted water. A proper water rehabilitation program is needed to recover some of these farms. NAQDA presence in the north western province area is even stronger.
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8 ENVIRONMENTAL ANALYS IS
8 . 1 Impact of aquaculture production on the environment
Shrimp farm effluents contain significant nutrient and suspended solid loadings. This has resulted in increased turbidity and Biochemical Oxygen Demand (BOD) OD in the lagoons where aquaculture shrimps farming is concentrated including the Dutch Canal. Significant increases in nitrite, sulphide and ammonia concentrations were observed that deteriorate significantly the water quality .71 The land use pattern has changed with agricultural land converted to shrimp farms. Significant areas of mangroves and salt marshes have been converted. Due to limited access to brackish or fresh water in the shrimp farming area, farmers are restricted to taking their source water from the same canal that they discharge their pond effluent into. Further due to unplanned development, inlet and outlet canals of adjoining farms are closely located. The result is intake of discharged water with suboptimal water quality from one farm into an adjoining farm. This situation contributed to a several disease outbreaks that resulted in closure of up to 50% of the farms in 1997, shrimp farms, and has become a chronic on-going problem since then. Like all major aquaculture shrimps producers in South and South-East Asia, Sri Lanka is also heavily using antibiotics. The most important issue of antibiotic release into the environment is the development of antibiotic resistance which has resulted in the reduction of therapeutic potential against human, and animal pathogens.72 A steady stream of organic waste, chemicals and antibiotics from shrimp farms can pollute groundwater or coastal estuaries. Salt from the ponds can also seep into the groundwater and onto agricultural land. This has had lasting effects, changing the hydrology that provides the foundation of wetland ecosystems.73 With regard to ornamental aquaculture production evidence from the field investigations suggests that most aquariums release polluted water into the waterways when tanks are cleaned which then increases the possibility of disease spread.
8 . 2 I mpact of climate change on aquaculture p r o d u c t i o n
Sustainability of brackish water shrimp farming is of paramount importance for socio-economic development of majority of fisher folks of the country. Here, shrimp farming is predominantly traditional, which is more vulnerable to climate change. Lack of understanding exists regarding the adaptation measures of local shrimp farmers in response to emerging impacts of changing climatic variables. With climate change frequency of extreme whether events will go high creating lesser predictability. Most common extreme whether events for shrimp farming areas are droughts and floods. Coastal regions and lagoons are flooded during the monsoon periods
71 Environmental assessment of shrimp farming in Sri Lanka, in: Composite Guidelines for the Environmental Assessment of Coastal Aquaculture Development, SEACAM 1999
72 Pathmalal M. Manage; Heavy use of antibiotics in aquaculture: Emerging human and animal health problems – A review; in Sri Lanka J. Aquatiic Science; 2018.
73 WWF, https://www.worldwildlife.org/industries/farmed-shrimp
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and this is more common in the north western province areas compared to the eastern province areas. Farmers from Chilaw area spoke of the floods happened during 2018 that caused most shrimp farms to get flooded and they lost all the shrimp and floods damaged their ponds as well. Droughts are also a serious concern since it increases the spread of diseases and heat waves are not suitable for optimal growth of shrimps. Sea level rise is another impact of climate change that creates hardship for shrimp farming operations. With increased sea levels input and output canals and water distribution canals will frequently fall down increasing the pond management costs. With increased sea levels, most operating ponds at the moment will become absolute in the near future. Talking to farmers it was noted that they are aware of changes in the weather patterns and the impacts that those changes creates in their production activities. As mentioned by the farmers, changes in climate variables largely affect the shrimp yield by increasing frequency of shrimp disease, causing physical damage to farm structure and deteriorating quality of water. Shrimp farmers try to adapt to those changes in various ways, including increasing pond depth, exchanging tidal water, providing shade using aquatic plants (this is not largely practiced), strengthening earthen dike and netting and fencing around the dike. However, some of these adaptation activities are creating a significant increase in the pond management cost.
Photo 9: Flood affected shrimp farms
Impact of climate change is different in the guppy farming sector since they are based on inland water and most of these farms are using well water (dug wells) and tap water. Biggest impacts of climate change they face are droughts and increased heat. Increased heat creates heat stress in ponds as they are manufactured using cement. This will then create problems in balancing the oxygen levels in water as well. In addition, droughts are reducing the ground water availability, and irregularities in supply of tap water by the government water supply services. Therefore, farmers will have to depend on one stock of water for a longer time allowing more room for diseases to spread. Farmers are using different initiative to adapt to impacts of climate change. Inability to change water regularly results in running air circulations for a longer time to manage oxygen levels of the water and that increases the cost of production. In addition, use of nest to provide necessary shades for ponds have also increased the cost of production.
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9 OPPORTUNITIES, OUTLOOK AND RECOMMENDATIONS
9 . 1 Opportunities
9 . 1 . 1 Untapped potential in aquaculture
Investigations by the National Aquaculture Development Authority (NAQDA) have revealed that over 8,500 ha in Sri Lanka can be developed into aquaculture. At present, only 25% of these areas are used for aquaculture. Feasibility studies have documented that aquaculture can be undertaken in these areas with reduced biological risks. Further, the opening up of the country’s Northern and Eastern Provinces after the cessation in 2009 of 30 years of civil conflict, generates new opportunities by enabling access to many virgin areas well suited for brackish as well as marine species aquaculture.74 In addition, there is potential to develop culture-based inland fish production in perennial and seasonal tanks, significant numbers of which remain underutilized at present.75
9 . 1 . 2 P a d d y - fish integrated farming
In addition to reviving the traditional system of fish farming in irrigation reservoirs, fish culture could be promoted as a source of additional income for farmers in paddy fields. Such paddy- fish integrated farming systems are widespread in paddy growing countries in the region. Some studies have found that pesticides can be reduced by 70-100 percent without influencing rice productivity when fish are introduced to paddy fields. Farmers can also procure extra rice outputs of around 3-5 percent in such integrated systems.
9 . 1 . 3 Opportunities to create backwa rd and forward l i n k a g e s
Aquaculture by-products like oyster shells can be used to produce calcium carbide, calcium hydroxide, white cement and agricultural calcium. Further, shrimp waste from processing plants has been successfully used to improve the quality of grass {Brachiaria briantha) silage for cattle.
9 . 1 . 4 Potential to develop aquatic plant culture
Experimental trials of Gracilaria edulis have been performed in Rekawa and Kalpitiya in open lagoon waters and in enclosed environments. The trials found the open water culture method to be suitable for small-scale, household-based aquaculture practice. Gracilaria is rich in micronutrients (vitamins and minerals) and is fit for human consumption and can be used for small-scale agar production as a household enterprise. There is also additional potential for home production of agar for puddings, soups and jellies in some areas of Sri Lanka.76
74 Asbjørn Drengstig, Aquaculture in Sri Lanka - History, current status and future potential, August 2013, available at: https://www.norwegian-lobster-farm.com/wp-content/uploads/2013/08/AQUACULTURE-IN-SRI- LANKA1.pdf, [accessed on: April 2018]. 75 K.H.D.T Kasagala, Aquaculture for Rural Development and Poverty Reduction in Sri Lanka: An Assessment of Potentials and Constraints, 2008, available at: http://dl.nsf.ac.lk/ohs/harti/22235.pdf, [accessed on: April 2018].
76 Ibid.
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9 . 1 . 5 Cage farming
Cage farming of shrimp, introduced under numerous trial projects in different regions of the country, has shown positive outcomes. As such, there is a growing interest to install bigger sea cages with circumference up to 60 meters in the northeast areas of the island.77
9 . 1 . 6 Captive breeding of endemic fish species for e x p o r t
Captive breeding of endemic fish species is a new trend in the ornamental fish export trade. Existing laws prohibit the export of endemic fish species to prevent their extinction (e.g. Export and Import of Live Fish Regulations, 1998). Studies have shown that some of the fish species, namely Ornate Paradise fish [Malpulutta kretseri), Combtail {Belontina signata), Barred Danio [Danio pathirana), Vateria flower Rasbora [Rasbora vaterifloris), Cuming's Barb {Puntius cumingii), Blotched filament Barb {Puntius srilankensis), Black Ruby Barb {Puntius nigrofasciatus), Cherry Barb (Puntius titteya) (and Stonesucker (Garra ceylonensis) could be bred artificially for export.78
9 . 1 . 7 Shrimps farming in accordanc e with GAP and organic production
Shrimps production in Sri Lanka has significant potential to produce and successfully market it on the local and regional market (domestic) within the island. It is not expected that the exports of shrimps will show significant growth rates due to internal problems, e.g. white spot virus, less productive smallholder production and concentration on environmentally challenged areas, but also because of the strong competition from countries, which have a much larger potential for production. Nonetheless, any expansion of shrimp production has to adhere to environmentally sound and sustainable management practices to reduce its negative impact on the environment. The introduction of standards such as Good Agriculture Practices (GAP), Good Manufacturing Practices (GMP) or organic shrimps production might give the right direction. Furthermore, since any new development of shrimps production schemes should take place in the eastern part of the island, organic shrimp production which requires pristine resources could be also considered. Examples from Bangladesh suggest that the prospects for organic shrimp farming are positive under the condition that a holistic ecosystem approach is pursued in which all actors along the value chain including the regulatory authorities are working together.79 In 2018, COOP from Switzerland started facilitating a 1,000 ha pilot project on organic black tiger shrimps and envisages to extend the project to other locations of India. The Sri Lankan shrimps industry might liaise with this project in the near future to assess the application of organic shrimps production to Sri Lanka.80
77 Sri Lanka Export Development Board, Shrimp Farming in Sri Lanka, 22 December 2017, available at: http://www.srilankabusiness.com/blog/developing-shrimp-farming-in-Sri-Lanka.html, [accessed on: April 2018]. 78 K.H.D.T Kasagala, Aquaculture for Rural Development and Poverty Reduction in Sri Lanka: An Assessment of Potentials and Constraints, 2008, available at: http://dl.nsf.ac.lk/ohs/harti/22235.pdf, [accessed on: April 2018].
79 B.G. Paul and C.R. Vogl; Key Performance Characteristics of Organic Shrimp Aquaculture in Southwest Bangladesh, in: Sustainability 2012,5,995-1012.
80 https://krishijagran.com/news/towards-export-oriented-organic-aqua-farming/
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9 . 1 . 8 Potential to attract foreign investment
At present, Sri Lanka is emerging as a target country for foreign investment in aquaculture. During the last few years investments have been made from countries like Norway, Scotland, Vietnam, Japan, USA and Canada. Investments have been directed into hatcheries, land- based on-growing systems, sea cages, and development of infrastructure facilities such as roads, common inlet/outlet canals for water intake and release, sedimentation canals, ponds, electricity, etc. Several international technology suppliers, including companies from Norway, have in the recent years initiated and established larger commercial production units for Barramundi or Asian sea bass and Tilapia in recirculating aquaculture systems (RAS).81
9 . 2 O u t l o o k
With regards to shrimps production Sri Lanka has a significant potential to produce and successfully market it on the local and regional market within the islands. It is not expected that the exports of shrimps will have significant growth rates due to internal problem, e.g. white spot virus, less productive smallholder production and concentration of environmentally challenged areas, but also because of the strong competition from countries which have a much larger potential for production. With regard to ornamental fish, Sri Lanka has a considerable potential for further production and exports. Sri Lankan large ornamental fish producers are very competent and are also innovative in developing new breeds. However, it also has to be noted that the market for ornamental fish is subject to high competition and up to now the absolute volume of exports is very marginal with currently an export value of currently approximately US $ 16 million.
9 . 3 Recommendations
9 . 3 . 1 Explore potential of int roducing artificially bred immature crab to lagoons
Introducing artificially bred immature crab to lagoons as adopted in inland fisheries and shrimp farming industries, is a possible solution that can be explored to overcome the problem of low availability of naturally bred crab.82
9 . 3 . 2 Take measures to return some of the abandoned ponds to shrimp production
Returning some abandoned ponds to production, provided producers are supported to adopt best practice and work together to avoid disease outbreaks and pollution in the future, will enhance shrimp production. Research based on the evidence from satellite images combined
81 Asbjørn Drengstig, Aquaculture in Sri Lanka - History, current status and future potential, August 2013, available at: https://www.norwegian-lobster-farm.com/wp-content/uploads/2013/08/AQUACULTURE-IN-SRI- LANKA1.pdf, [accessed on: April 2018].
82 Sandika A.L. and Hirimuthugoda N.Y. 2011. Socio-Economic and Livelihood Related Issues of Crab Collectors in Koggala Lagoon in Galle Sri Lanka, Tropical Agricultural Research & Extension 14(2), available at: http://www.agri.ruh.ac.lk/tare/pdf/v_14.2/(1)AEC%2011%2014.pdf, [accessed on: April 2018].
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with interviews with local people found that a staggering 90% of ponds in the study area were lying idle.83
9 . 3 . 3 Involvement and assistance of the Government sector for technological enhancement and other support services
These include the provision of necessary technology, support services such as electricity to farming areas, cleaning of main water channels and regulating the industry. In addition to Government support it is critical to promote decent ethics and behavior amongst farmers, and prevent undue political influence at the provincial and district levels.
9 . 3 . 4 Efficient mechanism to be established for transferring knowledge
The establishment of a mechanism to transfer research findings to the industry even up to grass root level farmers is key (especially research carried out by NARA and the Universities of Sri Lanka).84 Farmers must be adequately made aware and trained on modern methods relevant to operations and management of shrimp production, processing, and marketing.85
9 . 3 . 5 Promote sustainable aquaculture i n c l u d i n g o r g a n i c a q u a c u l t u r e
This includes the adoption of a small group approach (under SLADA) for managing waste and used water in farms, protecting of mangroves, cleaning of the surrounding environments etc. Further, farmers must be educated on advanced technologies for reducing environmental impacts and support provided for necessary physical developments in farms and surrounding territories. A feasibility study should be carried out to assess in detail the potential for organic aquaculture production, particularly an economic assessment whether (usually) reduced yields can be offset by higher prices and an institutional assessment to identify potential institutional gaps such as certification bodies and the regulatory framework.
9 . 3 . 6 Promote use of more effic ient technologies and best management practices
A key component of this is encouraging the use of Recirculatory System, and Efficient Aeration in hatcheries and farms. Extension activities of shrimp farming in Sri Lanka will need to recognize the reality of exploring low cost ways to improve the capacity of farms, especially smallholder farms, to prevent the introduction of pathogens, detect and respond quickly to
83 Mark Huxham, How shrimp farming wreaked havoc on Sri Lankas coasts, 21 July 2015, available at: http://theconversation.com/how-shrimp-farming-wreaked-havoc-on-sri-lankas-coasts-44933, [accessed on: April 2018]. 84 Coordinating Secretariat for Science Technology & Innovation (COSTI), Report, Round Table Discussion, Sustainable Development of Shrimp, 28 July 2014, available at: https://costi.gov.lk/index.php/en/2011-03-31- 04-24-11?download=182:round-table-discussion-shrimp-farming-industry, [accessed on: April 2018]. 85 Ibid.
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disease events, and have effective means for containing disease outbreaks. It is essential to increase the number of veterinary doctors assisting shrimp farming industry in Sri Lanka.
9 . 3 . 7 Managing disease o u t b r e a k s
Some of the recommendations made at the round table discussion held on sustainable development of shrimp were to - produce a sufficient number of technical experts (veterinary doctors, aquaculture engineers, technicians etc.) exclusively for shrimp farming activities and direct their service to field level activities - Extend Government support to facilitate the adoption of the latest advanced technologies by medium and large-scale farms - Create adequate disease diagnostic advanced facilities in every shrimp farming zone.
9 . 3 . 8 Provide suitable public land for shrimp farming
Allocate suitable public land for shrimp farming on a lease basis. Implement stable long-term policies on land lease, farm improvement & allocating new lands for farming.
9 . 3 . 9 Brood stack man a g e m e n t
Produce shrimp brood-stock in laboratory (SPF/SPR) and maintain a Central Brood Stock Bank. It is essential to establish a national brood-stock collecting center and a brood-stock bank with advance laboratory/technical facilities. Such an intervention can be implementing as a private-public partnership. It is important not to use any of the wild collected shrimp/brooder in the hatcheries and brooders must be obtained only from the brood-stock bank.
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