Required Report - public distribution

**Date:** 4/1/2004

**GAIN Report Number:** CE4002

CE4002

**Sri Lanka**

**Grain and Feed**

**Annual**

**2004**

**Approved by:**

![](media/image1.wmf)Chad R. Russell

U.S. Embassy, FASNEWDELHI

**Prepared by:**

Adrian Mendis

**Report Highlights:**

Sri Lanka's MY 2004/05 rice production is forecast at two million tons,
assuming favorable weather conditions. MY 2003/04 production was revised
downward to 1.8 million tons, due to dry weather conditions during the
ongoing maha season. Wheat imports in CY 2004 are forecast at 950,000
metric tons, with no likely improvement in US market share.

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)

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

[Consumption 3](#consumption)

[Trade 3](#trade)

[Marketing 3](#marketing)

[WHEAT 4](#wheat)

[Production 4](#production)

[Consumption 4](#consumption-1)

[Trade and Competition 4](#trade-and-competition)

[SECTION II - STATISTICAL TABLES 5](#section-ii---statistical-tables)

[Table 1: Commodity, Rice, PSD Table
5](#table-1-commodity-rice-psd-table)

[Table 2: Commodity, Wheat, PSD 6](#table-2-commodity-wheat-psd)

[Table 3: Commodity, Rice, Import Trade Matrix
7](#table-3-commodity-rice-import-trade-matrix)

[Table 4: Commodity, Wheat Import Trade Matrix
8](#table-4-commodity-wheat-import-trade-matrix)

[Table 5: Wheat Imports by Month, CY 2002 and CY 2003 by Country of
Origin
9](#table-5-wheat-imports-by-month-cy-2002-and-cy-2003-by-country-of-origin)

#   {#section-1 .unnumbered}

# SECTION I - SITUATION & OUTLOOK

## RICE

### Production Situation and Outlook

Sri Lanka's MY 2004/05 rice production is forecast at two million tons
(milled basis), assuming normal rains this summer and fall. The MY
2003/04 rice output is revised downward to 1.8 million tons, due largely
to the drought during the ongoing *maha* season. The *yala* crop
(harvested in the fall of 2003) is estimated at 800,000 tons, and the
*maha* crop, currently being harvested, at 1 million tons.

Rice is the most important crop in Sri Lanka, occupying approximately 34
percent of the total cultivated area. The average annual sown area for
rice is around 870,000 hectares, including both the *maha* and the
*yala* seasons. Sri Lanka produces an average of 2.7 million tons of
rough rice annually, which meets around 95 percent of the domestic
requirement.

Domestic rice demand is projected to increase at 1.1 percent per year.
Production would have to increase at 2.0 percent annually in order for
the country to become self-sufficient in rice. Future production
increases would have to come from better yields and higher cropping
intensity, as the scope for area expansion is limited.

### Consumption

Rice is a staple in the Sri Lankan diet. The annual per capita
consumption averages around 100 kilograms, which is influenced by the
relative price of rice vis-à-vis wheat. In recent years, there has been
a shift from rice to flour based foods, mainly in urban areas, due to
the ease of wheat-based food. This trend is likely to continue. Average
retail rice prices in 2003 ranged from SL Rs. 26-28 (37 cents) per
kilogram, compared with Rs. 29-33 (33 cents) per kilogram in 2002.

### Trade

Rice imports in MY 2004/05 are forecast at around 60,000 tons, compared
with 75,000 tons in MY 2003/04. The present tariff on rice is SL Rs. 9
per kilogram, an increase of Rs. 2 per kilogram over last year. If
domestic rice prices continue to rise, the government might reduce the
tariff to facilitate larger imports. On a calendar year basis, rice
imports dipped sharply from 92,000 tons in 2002 to 33,000 tons in 2003,
due to the bumper paddy harvest in MY 2002/03. Imports in CY 2004 are
estimated at 70,000 tons.

Sri Lanka imports rice mostly from India and Pakistan. Other minor
suppliers are China, the United Arab Emirates, Singapore, and Australia.
In CY 2003, Sri Lanka did not import rice from the United States.

### Marketing

Due to political considerations, successive governments have tried to
support farm prices for paddy rice. This year, the Cabinet again has
approved funds to purchase paddy rice from farmers at a farm gate
support price of SL Rs. 15 per kilogram. The country's milling industry
is dominated by 7 to 8 large mills, which have large storage facilities.

## WHEAT

### Production

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

### Consumption

Sri Lankan consumers' preference, particularly in urban areas, has been
shifting towards flour-based foods due to their cooking convenience. The
availability of a wide range of ready-to-eat wheat-based food products
has further supported wheat consumption. Annual per capita flour
consumption averages around 50 kilograms, and has the potential to
increase further if rice prices remain strong. Higher vegetable prices
also tend to support increased wheat consumption.

All the flour in Sri Lanka is produced by Prima (Ceylon) Ltd, the
country's sole flourmill. Small quantities of flour are imported by
end-users, such as the biscuit manufacturers, if the locally produced
flour does not meet their requirements. There has been some concern
regarding the quality of the flour produced by Prima since its
privatization in 2001, especially after it started importing low priced
wheat from India and other non-traditional origins. After Prima's
privatization, US wheat has been losing market share, as Prima now
focuses more on pricing and profit margins rather than on quality. US
wheat exports to Sri Lanka in CY 2003 were confined to just one shipment
of 52,500 tons, due to its relatively high price. The current retail
flour price is around SL Rs. 23 per kilogram. Flour distributed by Prima
in CY 2003 totaled 644,846 tons, little changed from 639,159 in 2002.

The US, Australia, and Canada were the major suppliers of wheat to Sri
Lanka before Prima's privatization. After the mill was sold to Prima in
2001, there has been a change in wheat procurement strategy with the
focus more on price rather than on quality. Concerns about profit
margins and the pressure from the government to maintain stable retail
flour prices forced Prima to source cheaper wheat. Imports from
countries like India, which were virtually non-existent before
privatization, now dominate the market. Although the privatization
agreement has a provision for holding adequate wheat stocks to meet
contingencies, according to official sources, Prima does not stock more
than 6,000 tons, compared to the buffer stock requirement of 25,000 tons
prior to privatization. A second flourmill (a joint venture between a
Sri Lankan Company and a UAE-based investor) in the vicinity of the
Colombo Port is scheduled to be commissioned in 2005.

### Trade and Competition

CY 2004 wheat imports are expected to be around 950,000 tons. Relatively
high US wheat prices and the price-buying by Prima will continue to
adversely affect US market share. Sri Lanka's CY 2003 wheat imports were
987,000 tons, with the US market share falling to 5 percent from 32
percent in 2002. All imports in CY 2003 were commercial, except for
15,000 tons of wheat received from the United States under the Section
416(B) program.

Following privatization, the Sri Lankan Government cut food subsidies.
The marketing efficiency of the mill has improved and the distribution
network has expanded. To regain lost share of the annual \$160 million
wheat market, the US industry should emphasize the reliability of supply
and quality of US wheat, and how good quality through increased milling
yields and better wheat-based products could result in higher
profitability. The likelihood of a second flourmill provides another
opportunity to position US wheat into the Sri Lankan market.

# SECTION II - STATISTICAL TABLES

## Table 1: Commodity, Rice, PSD Table

  ------------------- ---------- ------------- ------- ------------- ----- ------------- --------------
  **PSD Table**                                                                          

  **Country:**        **Sri                                                              
                      Lanka**                                                            

  **Commodity:**      **Rice,                                                            
                      Milled**                                                           

                                 **2002**              **2003**            **2004**      UOM

                      Old        New           Old     New           Old   New           

  **Market Year                  **10/2002**           **10/2003**         **10/2004**   (MONTH/YEAR)
  Begin**                                                                                

  Area Harvested      806        806           810     810           0     810           (1000
                                                                                         Hectares)

  Beginning Stocks    118        118           106     106           0     59            (1000 MT)

  Milled Production   2,058      2,058         2,108   1,848         0     2,006         (1000 MT)

  Rough Production    3,026      3,026         3,100   2,718         0     2,950         (1000 MT)

  Milling Rate(.9999) 6,800      6,800         6,800   6,800         0     6,800         (1000 MT)

  TOTAL Imports       80         80            25      75            0     60            (1000 MT)

  Jan-Dec Imports     25         92            92      33            0     70            (1000 MT)

  Jan-Dec Import U.S. 0          0             0       0             0     0             (1000 MT)

  **TOTAL SUPPLY**    2,256      **2,256**     2,239   **2,029**     0     **2,125**     (1000 MT)

  TOTAL Exports       0          0             0       0             0     0             (1000 MT)

  Jan-Dec Exports     0          0             0       0             0     0             (1000 MT)

  TOTAL Dom.          2,150      2,150         2,180   1,970         0     2,060         (1000 MT)
  Consumption                                                                            

  Ending Stocks       106        106           59      59            0     65            (1000 MT)

  **TOTAL             2,256      **2,256**     2,239   **2,029**     0     **2,125**     (1000 MT)
  DISTRIBUTION**                                                                         
  ------------------- ---------- ------------- ------- ------------- ----- ------------- --------------

##  Table 2: Commodity, Wheat, PSD

  ------------------- ----------- ------------- ------ ------------- ----- ------------- --------------
  **PSD Table**                                                                          

  **Country:**        **Sri                                                              
                      Lanka**                                                            

  **Commodity:**      **Wheat**                                                          

                                  **2002**             **2003**            **2004**      UOM

                      Old         New           Old    New           Old   New           

  **Market Year                   **01/2002**          **01/2003**         **01/2004**   (MONTH/YEAR)
  Begin**                                                                                

  Area Harvested      0           0             0      0             0     0             (1000
                                                                                         Hectares)

  Beginning Stocks    100         100           100    100           0     100           (1000 MT)

  Production          0           0             0      0             0     0             (1000 MT)

  TOTAL Mkt. Yr.      900         928           900    987           0     950           (1000 MT)
  Imports                                                                                

  Jul-Jun Imports     995         928           900    987           0     950           (1000 MT)

  Jul-Jun Import U.S. 171         171           0      50            0     150           (1000 MT)

  **TOTAL SUPPLY**    1000        **1028**      1000   **1087**      0     **1050**      (1000 MT)

  TOTAL Mkt. Yr.      0           0             0      0             0     0             (1000 MT)
  Exports                                                                                

  Jul-Jun Exports     0           0             0      0             0     0             (1000 MT)

  Feed Dom.           0           0             0      0             0     0             (1000 MT)
  Consumption                                                                            

  TOTAL Dom.          900         928           900    987           0     950           (1000 MT)
  Consumption                                                                            

  Ending Stocks       100         100           100    100           0     100           (1000 MT)

  **TOTAL             1000        **1028**      1000   **1087**      0     **1050**      (1000 MT)
  DISTRIBUTION**                                                                         
  ------------------- ----------- ------------- ------ ------------- ----- ------------- --------------

##  Table 3: Commodity, Rice, Import Trade Matrix

+---------------------------+--------------+-----------+-------------+
| **Import Trade Matrix**   |              |           |             |
+---------------------------+--------------+-----------+-------------+
| **Country:**              | **Sri        | Units:    | Metric Ton  |
|                           | Lanka**      |           |             |
+---------------------------+--------------+-----------+-------------+
| **Commodity:**            | **Rice,      |           |             |
|                           | Milled**     |           |             |
+---------------------------+--------------+-----------+-------------+
| **Time period:**          | ####         |           |             |
|                           | ## Jan - Dec |           |             |
+---------------------------+--------------+-----------+-------------+
| **Imports for**           | **2002**     |           | **2003**    |
+---------------------------+--------------+-----------+-------------+
| U.S.                      | 2000         | U.S.      | 0           |
+---------------------------+--------------+-----------+-------------+
| Others                    |              | Others    |             |
+---------------------------+--------------+-----------+-------------+
| India                     | 54433        | India     | 13482       |
+---------------------------+--------------+-----------+-------------+
| Pakistan                  | 25358        | Pakistan  | 12403       |
+---------------------------+--------------+-----------+-------------+
| Australia                 | 9792         |           |             |
+---------------------------+--------------+-----------+-------------+
|                           |              |           |             |
+---------------------------+--------------+-----------+-------------+
|                           |              |           |             |
+---------------------------+--------------+-----------+-------------+
|                           |              |           |             |
+---------------------------+--------------+-----------+-------------+
|                           |              |           |             |
+---------------------------+--------------+-----------+-------------+
|                           |              |           |             |
+---------------------------+--------------+-----------+-------------+
|                           |              |           |             |
+---------------------------+--------------+-----------+-------------+
|                           |              |           |             |
+---------------------------+--------------+-----------+-------------+
| **Total for Others**      | 89583        |           | 25885       |
+---------------------------+--------------+-----------+-------------+
| **Others not listed**     | 407          |           | 7824        |
+---------------------------+--------------+-----------+-------------+
| **Grand Total**           | 91990        |           | 33709       |
+---------------------------+--------------+-----------+-------------+

##  Table 4: Commodity, Wheat Import Trade Matrix

  ---------------------------- ---------------- ----------- --------------
  **Import Trade Matrix**                                   

  **Country:**                 **Sri Lanka**    Units:      Metric Ton

  **Commodity:**               **Wheat**                    

  **Time period:**             **Jan-Dec**                  

  **Imports for**              **2002**                     **2003**

  U.S.                         300,000          U.S.        52,500

  Others                                        Others      

  India                        209,000          India       413,650

  Australia                    275,875          France      332,273

                                                Canada      105,000

                                                             

                                                             

                                                             

                                                             

                                                             

                                                             

                                                             

  **Total for Others**         484,875                      850,923

  **Others not listed**        143,000                      83,577

  **Grand Total**              927,875                      987,000
  ---------------------------- ---------------- ----------- --------------

##  Table 5: Wheat Imports by Month, CY 2002 and CY 2003 by Country of Origin

**(metric tons)**

  ----------- ---------- ---------- ---------- ---------- ---------- ----------
              **2002**                         **2003**              

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

  January     58,925     52,500     111,425    52,500     81,422     133,922

  February    63,000     61,140     124,140    0          87,157     87,157

  March       0          74,000     74,000     0          42,853     42,853

  April       59,547     22,000     81,547     0          41,547     41,547

  May         0          113,047    113,047    0          176,570    176,570

  June        0          21,350     21,350     0          80,206     80,206

  July        0          60,450     60,450     0          24,677     24,677

  August      0          80,175     80,175     0          119,662    119,662

  September   62,130     18,831     80,961     0          69,324     69,324

  October     56,000     45,500     101,500    0          27,523     27,523

  November    0          78,100     78,100     0          77,013     77,013

  December    0          0          0          0          106,546    106,546

  Total       299,602    627,093    926,695    52,500     934,500    987,000
  ----------- ---------- ---------- ---------- ---------- ---------- ----------

1/ Non-US includes India, Australia, France, Canada, etc