Lankan coffee to fetch premium price - Report | Sunday Observer

Lankan coffee to fetch premium price - Report

18 October, 2020

The global specialty coffee market provides enormous opportunities for coffee producers, with the market estimated to grow from USD 35 billion in 2018 to over USD 80 billion by 2025.

In line with this increasing demand, Sri Lanka’s coffee exports have increased in recent years, growing 84 percent from 2017 to reach nearly USD 355,000 by 2019 as per Export Development Board (EDB) data.

The coffee industry has seen increased investment from the private sector and increased local demand and consumption of locally grown coffee in hotels, restaurants and cafes.

Market Development Facility (MDF), Australia’s flagship private sector development program has commissioned a report, ‘Arabica Coffee Value Chain Analysis’ – a one-of-a-kind, in-depth analysis into Sri Lanka’s specialty Arabica coffee sector.

The study collects information from bean to cup, charting the pathways to scale and identifying the opportunities for growth in the Arabica coffee sub-sector in Sri Lanka.

The recommendations of the report can be used by all stakeholders to align their efforts to achieve sustainable growth in this niche industry.

Findings of the Report

The key finding of MDF’s analysis is that Sri Lanka is well positioned geographically and climatically to produce high-quality specialty coffee and take advantage of growing demand in the global market a latest report on ‘Sri Lanka’s Arabica Coffee Chain Analysis’ commissioned by MDF stated.

According to the findings, nearly 80 percent of specialty coffee produced in Sri Lanka originates from smallholder farmers and backyard farmers, who are mostly women. This system of smallholder production of Sri Lankan coffee positions it well to take advantage of the growing demand for quality and diversity in the global market.

This detailed analysis of the value chain of Arabica plant varieties identifies Arabica as the best investment choice for specialty coffee in Sri Lanka. This is because Arabica plant varieties are well suited to grow in the vast mid- and upper highlands and fare best when growers intercrop the plants, especially with tea.

The specialised characteristics of domestically cultivated Arabica are a major selling point as high-quality and specialised niche products are becoming more attractive to consumers – locally and internationally, the report stated. This suggests specialty coffee could become a thriving export industry for Sri Lanka, particularly from Arabica plant varieties.

As it currently stands, Sri Lanka cannot produce enough coffee to meet international demand, with market demand five times higher than current production. This demonstrates the potential future for the industry as international consumers are interested in paying a premium for Sri Lankan coffee. Examples include, Japanese companies and European investors interested in Sri Lankan coffee.

A risk for the market is that currently it is susceptible to shocks. Respondents of the MDF study said that the overarching challenges related to currency fluctuations, electricity interruptions, political instability, the decline in tourism after the Easter Sunday terrorist attacks in 2019, and the current Covid-19 pandemic have affected the entire value chain, the revealed.

Why has Sri Lanka failed to develop the crop after it failed during the colonial era, for almost two centuries?

The rise and fall of the Sri Lankan coffee industry occurred in the colonial period (1800s) due to monocropping and the spread of the coffee leaf rust disease. In the early 1860s, in-vitro or laboratory-based, disease-resistant solutions towards “rust” were not as well developed as they are today.

The result was a switch to, and fast adoption of, tea, a regular income-generating crop that can be harvested monthly.

Later in the century, pioneer nations of coffee like Timor-Leste and Central American countries developed rust-resistant coffee cultivars, which were then brought into Sri Lanka, making a slow entry into farmlands.

However, the economic benefits and premium quality of tea had already made a stronger entry to the market, making it challenging to re-introduce coffee to farmers.

The coffee industry started up again in the 1970s, with the establishment of the Department of Export Agriculture (DEA).

The DEA recognised coffee’s cash crop potential and executed projects to bring coffee back through robust assistance programs, including providing free saplings, cash grants and technical assistance to growers. These projects laid the foundation for the coffee industry’s growth in Sri Lanka.

MDF identifies that over the past 20 years, businesses and government agencies have invested heavily in the coffee industry. The increase in the number of processors and roasters in the sector is a clear indication of this change. Efforts are under way to increase coffee supply, with both the government and private sector players investing in planting Lakparakum, a new variety of Arabica coffee, in conducive regions. However, given the lag time between planting and harvesting, it will take time for the production figures to reflect the expanded area under cultivation.

A challenge, however, is the gap in farmer knowledge around coffee demand and new technology. While there is opportunity to expand this industry further, most farmers do not realise this potential.

Farmers and processors who use traditional methods do not benefit from the new, more efficient technologies available. The crop would greatly benefit if farmers had better access to up-to-date information on the demand for coffee and were able to use modern, innovative agricultural techniques.

Developing and promoting the crop as an export commodity

MDF’s report identifies opportunities for improvement and sustainability of the Arabica value chain. MDF’s vision is that developing the crop for a stable market should be a ‘whole of sector’ approach – a collective commitment from every link in the coffee value chain to develop and elevate the crop.

Therefore, MDF identifies several opportunities in public sector management and policy, farming and processing, and promotion and marketing to assist the sector reach its full potential.

The main opportunity is the macro-climatic and agronomic suitability of Arabica coffee to Sri Lanka, and hence the strong potential for coffee to proliferate as a cash crop across the districts of Sri Lanka’s Central Highlands.

This means the number of potential smallholder coffee growers who can benefit from cultivating and selling coffee can exponentially increase.

Another opportunity identified by MDF is investment in information, technical consultation, and extension services directed at improving farm productivity, reducing wastage and improving quality at production stage.

As per MDF’s estimates, coffee production currently amounts to about 5-8 per cent of a farmer’s income. MDF’s study estimates that coffee income can increase to 10 per cent of a farmer’s income if farmers have access to better information and growers are incentivised to focus on cherry production instead of green bean processing.

This suggests that investment in quality information from all market actors in the value chain – government, private sector, farmers, roasters and processes – will be crucial in achieving this change.


MDF said there is great potential for the specialty coffee sector to become a sustainable export industry for Sri Lanka, which will take the ‘Ceylon’ brand to international markets.

The researchers determined that the Sri Lankan coffee value chain can successfully expand into export markets once the production and quality of raw material increases and industry actors optimise their practices. Growth in the specialty Arabica coffee industry (both in terms of price for the produce and volumes) will benefit all stakeholders in the value chain, thereby elevating foreign exchange and rural livelihoods.

Apart from cash crop profits, harvesting coffee offers short-term employment for the rural poor. This is particularly beneficial for women who are most involved at the grassroots level in cultivation, harvesting and processing coffee that provides flexible, seasonal work with an additional income.

Home garden programs that target female coffee farmers can have a powerful impact on Women’s Economic Empowerment.

This is in the ‘Dhanasaviya’ initiative by the DEA, or by MDF’s work with private sector players such as Colombo Coffee Company, Ella Coffee Cooperative and Helanta Coffee, where MDF is working with the businesses to move into a cherry-purchasing business model versus the traditional green bean model.

The market intervention enables farmers – many of whom are women – to sell quality coffee cherries, earning better income and also saving on the time previously spent on drying the cherries into green beans.

As incomes increase, more young people will also be drawn to the industry, contributing to poverty reduction and a positive impact on the economy. Private companies processing and marketing Sri Lankan coffee to the local hospitality sector and select export markets also stand to benefit via increase in revenue.

The coffee industry offers major growth potential for the Sri Lankan economy in terms of foreign exchange, domestic consumption and livelihood development – benefitting the entire value chain. MDF is funded by the Australian Government and implemented by Palladium, in partnership with Swisscontact.