Required Report - public distribution

**Date:** 3/29/2007

**GAIN Report Number:** CE7001

CE7001

**Sri Lanka**

**Grain and Feed**

**Annual Report**

**2007**

**Approved by:**

![](media/image1.wmf)Holly Higgins

U.S. Embassy, New Delhi

**Prepared by:**

Adrian Mendis

**Report Highlights:**

Sri Lanka's MY 2007/08 (Oct - Sep) rice production is forecast at 2.2
million tons, assuming favorable weather and political conditions. MY
2006/07 rice production is estimated at 2.1 million tons. Wheat imports
in CY 2007 are estimated at one million tons. Except for one consignment
of 8,8400 tons of wheat from the United States under the 416 (B) food
aid program, wheat imports in CY 2006 were mainly from Canada.

Includes PSD Changes: Yes

Includes Trade Matrix: Yes

Annual Report

New Delhi \[IN1\]

\[CE\]

# Table of Contents

[SECTION I - SITUATION & OUTLOOK 3](#section-i---situation-outlook)

[RICE 3](#rice)

[Commodity, Rice, Milled, PSD 3](#commodity-rice-milled-psd)

[Production Situation and Outlook 3](#production-situation-and-outlook)

[Consumption 4](#consumption)

[Trade 4](#trade)

[Import Trade Matrix 4](#import-trade-matrix)

[Marketing 4](#marketing)

[WHEAT 5](#wheat)

[Commodity, Wheat, PSD 5](#commodity-wheat-psd)

[Production 5](#production)

[Consumption 5](#consumption-1)

[Trade and Competition 6](#trade-and-competition)

[Import Trade Matrix 6](#import-trade-matrix-1)

[Wheat Imports by Month (metric ton)
7](#wheat-imports-by-month-metric-ton)

#  

# SECTION I - SITUATION & OUTLOOK

## RICE

### Commodity, Rice, Milled, PSD

<table>
<colgroup>
<col style="width: 20%" />
<col style="width: 8%" />
<col style="width: 8%" />
<col style="width: 8%" />
<col style="width: 8%" />
<col style="width: 8%" />
<col style="width: 8%" />
<col style="width: 8%" />
<col style="width: 8%" />
<col style="width: 8%" />
</colgroup>
<tbody>
<tr class="odd">
<td>Country</td>
<td>Sri Lanka</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr class="even">
<td>Commodity</td>
<td colspan="2">Rice, Milled</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td colspan="3">(1000 HA)(1000 MT)(MT/HA)</td>
</tr>
<tr class="odd">
<td></td>
<td>2005</td>
<td>Revised</td>
<td></td>
<td>2006</td>
<td>Estimate</td>
<td></td>
<td>2007</td>
<td>Forecast</td>
<td></td>
</tr>
<tr class="even">
<td></td>
<td><p>USDA</p>
<p>Official</p></td>
<td><p>Post</p>
<p>Estimate</p></td>
<td><p>Post</p>
<p>Estimate</p>
<p>New</p></td>
<td><p>USDA</p>
<p>Official</p></td>
<td><p>Post</p>
<p>Estimate</p></td>
<td><p>Post</p>
<p>Estimate</p>
<p>New</p></td>
<td><p>USDA</p>
<p>Official</p></td>
<td><p>Post</p>
<p>Estimate</p></td>
<td><p>Post</p>
<p>Estimate</p>
<p>New</p></td>
</tr>
<tr class="odd">
<td>Market Year Begin</td>
<td></td>
<td>01/2005</td>
<td>01/2005</td>
<td></td>
<td>01/2006</td>
<td>01/2006</td>
<td></td>
<td>01/2007</td>
<td>01/2007</td>
</tr>
<tr class="even">
<td>Area Harvested</td>
<td>800</td>
<td>800</td>
<td>800</td>
<td>800</td>
<td>800</td>
<td>846</td>
<td>0</td>
<td>0</td>
<td>800</td>
</tr>
<tr class="odd">
<td>Beginning Stocks</td>
<td>60</td>
<td>60</td>
<td>60</td>
<td>60</td>
<td>60</td>
<td>60</td>
<td>60</td>
<td>120</td>
<td>60</td>
</tr>
<tr class="even">
<td>Milled Production</td>
<td>2100</td>
<td>2100</td>
<td>2100</td>
<td>2150</td>
<td>2200</td>
<td>2145</td>
<td>0</td>
<td>0</td>
<td>2200</td>
</tr>
<tr class="odd">
<td>Rough Production</td>
<td>3088</td>
<td>3088</td>
<td>3088</td>
<td>3162</td>
<td>3235</td>
<td>3154</td>
<td>0</td>
<td>0</td>
<td>3235</td>
</tr>
<tr class="even">
<td>Milling Rate (.9999)</td>
<td>6800</td>
<td>6800</td>
<td>6800</td>
<td>6800</td>
<td>6800</td>
<td>6800</td>
<td>0</td>
<td>0</td>
<td>6800</td>
</tr>
<tr class="odd">
<td>MY Imports</td>
<td>50</td>
<td>50</td>
<td>50</td>
<td>50</td>
<td>60</td>
<td>11</td>
<td>0</td>
<td>0</td>
<td>15</td>
</tr>
<tr class="even">
<td>TY Imports</td>
<td>50</td>
<td>50</td>
<td>50</td>
<td>50</td>
<td>60</td>
<td>11</td>
<td>0</td>
<td>0</td>
<td>15</td>
</tr>
<tr class="odd">
<td>TY Imp. from U.S.</td>
<td>0</td>
<td>0</td>
<td>0</td>
<td>0</td>
<td>0</td>
<td>0</td>
<td>0</td>
<td>0</td>
<td>0</td>
</tr>
<tr class="even">
<td>Total Supply</td>
<td>2210</td>
<td>2210</td>
<td>2210</td>
<td>2260</td>
<td>2320</td>
<td>2216</td>
<td>60</td>
<td>120</td>
<td>2275</td>
</tr>
<tr class="odd">
<td>MY Exports</td>
<td>0</td>
<td>0</td>
<td>0</td>
<td>0</td>
<td>0</td>
<td>0</td>
<td>0</td>
<td>0</td>
<td>0</td>
</tr>
<tr class="even">
<td>TY Exports</td>
<td>0</td>
<td>0</td>
<td>0</td>
<td>0</td>
<td>0</td>
<td>0</td>
<td>0</td>
<td>0</td>
<td>0</td>
</tr>
<tr class="odd">
<td>Total Consumption</td>
<td>2150</td>
<td>2150</td>
<td>2150</td>
<td>2200</td>
<td>2200</td>
<td>2156</td>
<td>0</td>
<td>0</td>
<td>2225</td>
</tr>
<tr class="even">
<td>Ending Stocks</td>
<td>60</td>
<td>60</td>
<td>60</td>
<td>60</td>
<td>120</td>
<td>60</td>
<td>0</td>
<td>0</td>
<td>50</td>
</tr>
<tr class="odd">
<td>Total Distribution</td>
<td>2210</td>
<td>2210</td>
<td>2210</td>
<td>2260</td>
<td>2320</td>
<td>2216</td>
<td>0</td>
<td>0</td>
<td>2275</td>
</tr>
<tr class="even">
<td>Yield (Rough)</td>
<td>3.86</td>
<td>3.86</td>
<td>3.86</td>
<td>3.9525</td>
<td>4.04375</td>
<td>3.728132</td>
<td>0</td>
<td>0</td>
<td>4.04375</td>
</tr>
</tbody>
</table>

### 

### Production Situation and Outlook

Sri Lanka's MY 2007/08 rice production is forecast at 2.2 million tons
(milled basis), assuming favorable weather conditions and a stable
political environment. A resumption of hostilities between the Sri
Lankan government and the Liberation Tigers of Tamil Elam (LTTE), a
terrorist separatist group since last year could affect rice farming in
the northeastern parts of the country. Some farmers in the eastern
districts of Batticaloa and Amparai were unable to harvest their crop
this year due to the escalation of violence. Rice production in MY
2006/07 is estimated at 2.1 million tons, which includes a *yala* crop
(harvested in the fall of 2006) of around 820,000 tons, and a *maha*
crop, currently being harvested, of 1.3 million tons.

Rice is the dietary staple in Sri Lanka and is cultivated in most parts
of the country, with approximately 50 percent of production confined to
five southern, eastern and northwestern districts. The *maha* season
crop (approximately 63% of total production) is planted in the fall and
harvested in the spring, while the *yala* crop (37% of production) is
planted in the summer and harvested in the fall. Although paddy prices
have increased in nominal terms in recent years, profitability has been
declining due to escalating production costs. Inadequate marketing
channels and storage facilities often compel farmers to sell their paddy
at low prices. Water management has been a challenge, particularly in
the \'dry zone\' in the east, southeast, and northern parts of the
country, as only 42 percent of total rice area (about 870,000 hectares)
has assured irrigation.

### Consumption

Rice continues to be the preferred staple in Sri Lanka with around 28
percent of household food expenditure on rice. Rice is the major calorie
source (45 percent) and protein source (40 percent) for most Sri
Lankans. Annual per capita consumption is around 100 kilograms, and is
influenced by the price of wheat flour. Rice consumption is expected to
grow as the government is encouraging consumers to eat more rice instead
of wheat to reduce dependency on imported wheat and flour. Retail rice
prices ranged from Rs. 35 (35 cents) to Rs. 60 (60 cents) per kilogram
in 2006.

### Trade 

Rice imports in CY 2007 are forecast at around 15,000 tons, compared
with 11,000 tons in CY 2006. The current import tariff on rice is 20
percent. The GSL typically revises the tariff upward during the peak
harvesting season to protect farmers' interest. Sri Lanka imports rice
mainly from India and Pakistan, and smaller volumes from Australia and
Thailand. Under the Sri Lanka/Pakistan free trade agreement, 6,000 tons
of basmati rice imports are allowed duty free during the lean production
season.

### Import Trade Matrix

  ------------------------- ---------------- ------------ ----------------
  Country                   Sri Lanka                     

  Commodity                 Rice, Milled                  

  Time Period               Jan-Dec          Units:       Metric Tons

  Imports for:              2005                          2006

  U.S.                                       U.S.          

  Others                                     Others       

  India                     35,365           Pakistan     9,805

  Pakistan                  14,612           India        623

                                                           

  Total for Others          49,977                        10,428

  Others not Listed         23                            572

  Grand Total               50,000                        11,000
  ------------------------- ---------------- ------------ ----------------

### Marketing

The private trade handles most of the paddy crop surplus in the country.
Due to lack of proper marketing infrastructure, farmers often sell their
produce at prices less than the cost of production. The government is
planning to procure 110,000 tons of paddy from the current *'maha'*
harvest through the Agrarian Produce Marketing Authority, at support
prices ranging from Rs. 16.50 (17 cents) to Rs. 17.50 (18 cents) per
kilogram, depending on the variety. However, there is skepticism
regarding the government's procurement operation, which according to
media reports is plagued by corruption and unfair trade practices.

## 

## 

## 

##  

## WHEAT

## 

### Commodity, Wheat, PSD

### 

  -------------- ---------- ---------- ----------- ---------- ---------- ----------- ------------ ---------- -----------
  Country        Sri Lanka                                                                                   

  Commodity      Wheat                                                               (1000                   
                                                                                     HA)(1000                
                                                                                     MT)(MT/HA)              

                 2005       Revised                2006       Estimate               2007         Forecast   

                 USDA\      Post\      Post\       USDA\      Post\      Post\       USDA\        Post\      Post\
                 Official   Estimate   Estimate\   Official   Estimate   Estimate\   Official     Estimate   Estimate\
                                       New                               New                                 New

  Market Year               01/2005    01/2005                01/2006    01/2006                  01/2007    01/2007
  Begin                                                                                                      

  Area Harvested 0          0          0           0          0          0           0            0          0

  Beginning      150        100        100         100        100        100         50           100        100
  Stocks                                                                                                     

  Production     0          0          0           0          0          0           0            0          0

  MY Imports     1100       956        956         1050       1000       1170        0            0          1000

  TY Imports     1151       950        950         1050       0          950         0            0          0

  TY Imp. from   45         28         28          0          0          9           0            0          0
  U.S.                                                                                                       

  Total Supply   1250       1056       1056        1150       1100       1270        50           100        1100

  MY Exports     150        0          0           150        0          0           0            0          0

  TY Exports     158        0          0           150        0          0           0            0          0

  Feed           0          0          0           0          0          0           0            0          0
  Consumption                                                                                                

  FSI            1000       956        956         950        1000       1170        0            0          1000
  Consumption                                                                                                

  Total          1000       956        956         950        1000       1170        0            0          1000
  Consumption                                                                                                

  Ending Stocks  100        100        100         50         100        100         0            0          100

  Total          1250       1056       1056        1150       1100       1270        0            0          1100
  Distribution                                                                                               

  Yield          0          0          0           0          0          0           0            0          0
  -------------- ---------- ---------- ----------- ---------- ---------- ----------- ------------ ---------- -----------

### 

### Production

There is no wheat cultivation in Sri Lanka. The country's entire wheat
needs are met through imports.

### Consumption

Wheat consumption continued to remain stable over the past few yeas
despite the government focus on promoting rice consumption. The rising
cost of meat, fish, and vegetables, which are traditional side dishes to
rice-based meals, together with the convenience associated with
wheat-based food products has helped to maintain the wheat consumption
level. An increasing number of bakeries and small and medium fast food
outlets specializing in wheat-based products have also supported wheat
consumption. Average monthly consumption of wheat flour and bread per
household is placed at 3.1 kg and 7.4 kg, respectively.

Prima Ceylon Ltd., a Singaporean firm, which is the only flourmill in
Sri Lanka, supplies most of the country's flour requirements. The
company has a milling capacity of 3,600 tons per day and is one of the
largest mills under a single complex in the world. Under a PL 480
agreement in 2002, Prima was able to upgrade its port operation, which
now has the capacity to berth larger bulk vessels. Although a second
flourmill is planned in Colombo, progress has so far been slow.

The government considers wheat flour as an essential food item.
Therefore, Prima is not allowed to revise flour prices without the
government's permission, even when wheat prices increase, thereby
impacting the consistency of its flour quality. Wheat attracts a 15
percent basic tariff with an additional surcharge of 10 percent. The
government revises tariffs depending on domestic and international
market conditions. Arbitrary pricing and tariff revisions tend to
distort the market. The government recently withdrew a subsidy paid to
Prima to offset losses due to price inflexibility. To overcome the
problem of inconsistent quality of the flour supplied by Prima, some
end-users/processors prefer to import flour directly to meet their
specific requirements.

### Trade and Competition

CY 2007 wheat imports are estimated at around one million tons. High
U.S. wheat prices vis-à-vis other suppliers, and Prima's core focus on
price and profit margin rather than on quality, continue to limit wheat
imports from the United States. CY 2006 wheat imports were 1.1 million
tons, mostly from Canada. Imports from the United States were confined
to 8,800 tons, supplied under a food aid program.

### Import Trade Matrix

  --------------------- -------------- -------------------- --------------
  Country               Sri Lanka                           

  Commodity             Wheat                               

  Time Period           Jan-Dec        Units:               Metric Tons

  Imports for:          2005                                2006

  U.S.                  28,000         U.S.                 8,780

  Others                               Others               

  Canada                511,029        Canada               1,154,754

  Argentina             340,488        Australia            9,724

  Australia             43,954                               

  India                 32,644                               

                                                             

  Total for Others      928,115                             1,164,478

  Others not Listed     23                                   

  Grand Total           956,138                             1,173,258
  --------------------- -------------- -------------------- --------------

###  

### Wheat Imports by Month (metric ton)

  ----------- ---------- ------------ ----------- ---------- ------------ -----------
              **2005**                            **2006**                

              **US**     **Non-US     **Total**   **US**     **Non-US     **Total**
                         1/**                                1/**         

  January     0          70,926       70,926      8,780      48,663       57,443

  February    0          66,244       66,244      0          70,137       70,137

  March       0          136,549      136,549     0          132,188      132,188

  April       0          83,980       83,980      0          61,000       61,000

  May         0          69,475       69,475      0          123,300      123,300

  June        0          63,498       63,498      0          137,053      137,053

  July        0          132,109      132,109     0          132,702      132,702

  August      0          70           70          0          68,871       68,871

  September   0          108,382      108,382     0          129,488      129,488

  October     0          67,560       67,560      0          0            0

  November    0          178          178         0          128,771      128,771

  December    28,000     129,167      157,167     0          132,305      132,305

  Total       28,000     928,138      956,138     8,780      1,164,478    1,173,258
  ----------- ---------- ------------ ----------- ---------- ------------ -----------

**1/** Non-US includes India, Australia, Argentina, Canada, etc.