Agriculture Sector Modernization Project




Sri Lanka’s agriculture is characterized by a non-plantation sectorand a plantation sector. Of the country’s approximately 2.3 million hectaresof agricultural land, 80 percent is used for non-plantation food crops, comprising rice, maize, fruits, vegetables and other crops that are 2 primarily grown on smallholder farms. About 1.65 million smallholder farmers operate on average less than 2 hectares and contribute 80 percent of the total annual food production. Agriculture has been an important driver of poverty reduction and accounted for about one third of the decline in poverty over the past decade. Poverty reduction in rural areas in Sri Lanka was driven by higher agricultural wages which grew annually by an average of 5.7 percent during 2006 to 2013 and caused rural poverty to fall more rapidly than in other sectors. However, there is a riskthat these income gains may not be sustainable if agriculture productivity does not improve and the sector does not start to modernize through diversification, commercialization and value addition.

With rice self-sufficiency secured, a consensus has recently emerged within government that the country should capitalize more strategically on the opportunity to diversify the production structure out of the relatively low value food crops and move towards high-value agriculture and promote agriculture exports. This structural shift is critical to sustaining income growth going into the future, accelerating poverty reduction and reversing the trend inincreasing inequality. Since most of the fruits and vegetablesnot only generate higher income as compared to rice but demand more intensive labor input, higher levels of technology input, better crop management, and investments in post-harvest management, marketing, and better organized value chains overall, there is also significant potentialfor employment growth and moreproductive jobs in agriculture. This shift would also imply moving towards a more high-value production structure, agro-processing and value addition activities, and increased competitiveness. This will likely involve revisiting and aligning current trade policy to become more consistent and conducive for high-value export agriculture; realigning public sector support away fromgeneral fertilizer subsidies to better targeted support and greater attention to R&D, including private R&D;revisiting and relaxing the rice self-sufficiency policy and allowing for more demand-driven and market oriented production; and overcoming long-standing structural constraints, such as low organizational levels of farmers, land fragmentation, and poor price information systems. To achieve such modernization, differentiated strategies are needed for different parts of the country. In the north and east, there is significant scope for agriculture expansion and productivity growth – both through traditional and non-traditional agriculture – as productivity remains low, markets and value addition activities remain undeveloped and the potential for niche commodities remains significant for domestic and export markets. In other parts of the country, it is important to promote more robust investment and innovation in agribusinesses for value addition and farmer integration into high value chains through scaling up and diversification into more commercial crops. This modernization drive has to be crucially underpinned by a supportive policy and regulatory enabling environment, with due consideration to the economic and evidence-based policy decision making processes.

The Project

The World Bank funded Agriculture Sector Modernization Project is aligned with the Country Partnership Strategy (CPS) 2013-2016 (Report 66286-LK, May 22, 2012). The project seeks to contribute to two CPS focus areas, namely: “Supporting structural shifts in the economy” and “Improved living standards and social inclusion” through: (a) improving agricultural productivity and competitiveness to strengthen the links between rural and urban areas and facilitate Sri Lanka’s structural transformation; (b) providing and strengthening rural livelihood sources, employmentopportunities in agriculture and along agriculture value chains, as well as market access for the poor, bottom 40 percent, and vulnerable people, thereby improving income sources and livelihood security in lagging ruralareas; and (c) contributing to improved flood and drought management, through project’s linkages to the water and irrigation sectors and a climate-smart agriculture approach. The project is alsoto promote diversification, value addition and increased competitiveness in the agriculture sector.

The development objectives of Agriculture Sector Modernization Project for Sri Lanka are to support increasing agriculture productivity, improving market access, and enhancing value addition of smallholder farmers and agribusinesses in the project areas. 

This project has three components.

(01) The first component, Agriculture Value Chain Development, seeks to promote commercial and export-oriented agriculture; attract and leverage investments from farmer producer organizations and agribusinesses for high value agriculture production and value addition; and provide the enabling environment, incentives, and access to finance for such investments through matching grants, technical assistance support, linkages to the commercial banking sector, and a Partial Credit Guarantee (PCG) facility. It has three sub components as follows: (i) investment preparation support; (ii) matching grants to farmer producer organizations and agribusinesses; and (iii) partial credit guarantee.

(02) The second component, Productivity Enhancement and Diversification Demonstrations, aims at supporting smallholder farmers to produce competitive and marketable commodities, improve their ability to respond to market requirements, and move towards increased commercialization. It has four sub components as follows: (i) farmer training and capacity building; (ii) modern agriculture technology parks; (iii) production and market infrastructure; and (IV) analytical and policy advisory support.

(03)The third component, Project Management, Monitoring and Evaluation, will support the Project Management Units (PMUs) of Ministry of Primary Industries (MOPI) and Ministry of Agriculture (MOA) and the Provincial Project Management Units (PPMUs) in the participating provinces in project management and coordination, technical supervision, financial management, procurement, social and environmental safeguards, and monitoring and evaluation.

Ministry of Agriculture (Productivity Enhancement and Diversification Demonstrations)

The Ministry of Agriculture is responsible for the implementation of Component 2: Productivity Enhancement and Diversification Demonstrations (US$ 58.63 million, IDA US$ 58.63 million). The component aims at supporting smallholder farmers to produce competitive and marketable commodities,improve their ability to respond to market requirements, and move towards increased commercialization.

Component 2 comprises the following sub-components:

(a) Sub-component 2.1: Farmer Training and Capacity Building (Total Cost US$ 6.20 million, IDA US$ 6.20 million),supporting knowledge building and capability improvements of smallholder farmers and the establishment offarmer producer organizations to help them to respond better to market opportunities.

(b) Sub-component 2.2: Modern Agriculture Technology Parks (Total Cost US$ 33.44 million, IDA US$ 33.44 million), supporting the introduction, demonstration, and scale-up of innovative agriculture technology packages that are not yet available or practiced by smallholder farmers and producer organizations but would support productivity improvements, diversification, commercialization, more sustainable and climate resilient production patterns (high value products, new varieties, technology, soil, water, fertilization etc.). The sub-component will support the establishment of agriculture technology demonstration parks inseven proposed districts of Jaffna, Mullaitivu (Northern Province), Batticaloa (Eastern Province), Monaragla (Uva Provinces), Anuradhapura, Polonnaruwa (North-Central Province), andMatale (Central Province)which have been identified based on high poverty headcounts and agriculture development potential. These agriculture technology demonstration parks will be set up to demonstrate entire agriculture value chain approaches with a clear end-marketfocus for selected crops, involving: farmer mobilization and training, agriculture production, post-harvest handling and/or processing, and marketing. Each park will include approximately eight to ten entire villages and can be expanded based on demand and resource availability.

The sub-component will also support the organization of two international technology fora/ conferences in the first and second year of project implementation, inviting international and domestic service providers to discuss and present their agricultural development models successfully implemented and demonstrated in similar agro-ecological and socio-cultural environments.

(c) Sub-component 2.3: Production and Market Infrastructure (US$ 14.71 million, IDA US$ 14.71 million), supporting: (i) the up-grading and rehabilitation of small-scale irrigation infrastructure and existing water tanks and irrigation systems in the selected priority project areas and linked to the agriculture technology demonstrations parks; (ii) the improvement of selected production and market access roads and construction of new field access tracks to improve transportation, access to markets and accessibility for agricultural machinery; and (iii) village level storage and product handling facilities, including drying platforms and sheds, composting facilities of crop residues, storage facilities and others. Infrastructure investment would complement investments in the agriculture technology demonstration parks under sub-component 2.2. Procurement and management of civil works contracts would be under the management of the Provincial Project Management Units (PPMUs) under the overall project implementation responsibility of Ministry of Agriculture-Project Management Unit (MOA-PMU).

(d) Sub-component 2.4: Analytical and Policy Advisory Support(Total Cost US$ 4.28 million, IDA US$ 4.28 million). The component will provide support to: develop an evidence-based policy, legal and regulatory framework; address knowledge gaps as well as policy and regulatory inconsistencies as they may arise from time to time with policy decisions emanating from different parts of the government; and formulate sector and sub-sectoral strategies to provide the suitable enabling environment for a sustainable and competitive modern agriculture and food system. The sub-component will be implemented under the responsibility of the MOA-PMU. Activities to be supported under this sub-component would include technical assistance to: (i) evaluate policies and regulations and recommend adjustments, reforms or new policies needed to make agriculture more competitive, responsive to market demand, gender sensitive,sustainable, and resilient; (ii) undertake strategic market analysis for promoting new and high value exports, and analyze the changes needed in the policy, regulatory and institutional framework, or public investments needed to address the binding constraints to the evolution of high impact value chains; (iii) evaluate the social and economic impact ofpolicies and public expenditures and make recommendations on course corrections to improve the efficiency and effectiveness of public expenditures; (iv) undertake external and independent monitoring and evaluation functions, including formal impact evaluations of governmentprograms and investments, to provide the critical learning and feedback loop into the ministries’ decision making processes. It would also support: (v) annual conferences on Sri Lanka’s agricultural policy; (vi) equipment, office furniture, and communications technology for MOA’s proposed Center of Excellence; (vii) technical assistance to conceptualize a national agriculture information system,with the medium-term objective tobuild capacity for data collection and management in support of policy formulation, enhanced public service provision, and improved risk monitoring in agriculture.

Project Documents                             


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Project Appraisal Document 


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Environmental Assessment & Management Framework



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Pest Management Plan


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Resettlement Policy Framework


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Invitation To Present Modern Agriculture Technologies


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Request for expression of interest - hiring research teams for policy research studies


Template for Expression of Interest for Policy Reasearch


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Expression of Interest for Farmer Producer Organizations and Training Need Assessment- hiring service providers




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Ministry of Agriculture


"Govijana Mandiraya",

Rajamalwatta Lane,

Battaramulla, Sri Lanka,

Tel: +94-11-2034300



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