Adding ‘spice’ to an already profitable journey

By Antony Motha

Demand for spices is picking up worldwide.

KANDY - Upali Kodikara of Small Growers' Spice Society was wearing a broad smile. We were on his eight-acre farm near Kandy, the heart of Sri Lanka's 'spice country'. The 1,000 kgs of spices that Kodikara had sold since July 2006 had been grown organically, using no chemical fertilizers whatsoever. Kodikara's obvious delight, we soon realized, was not entirely because of The Sunday Times FT's presence at his farm. It stemmed more from the e-mail printout that he was brandishing like a trophy.
Kodikara had just received the e-mail from a Malaysian buyer. In a nutshell, the mail was an order for 2,000 kgs of cloves at US$ 8 (Rs 880) per kg. This was incredible! The last order had fetched an FOB price of only US$ 5 (Rs 550) per kg and local traders were offering just Rs 240 per kg for cloves.

One of the reasons why producers like Kodikara are realizing better prices is that "demand for spices is picking up worldwide", explains Sarada de Silva, Chairman of The Spice Council, the apex body to develop the spice industry. "However, credit also goes to other stakeholders involved in the industry - The Spice Council, SAPPTA, the Department of Export Agriculture (DEA) and the Export Development Board (EDB). Producers and exporters from the private sector have also played a role in earning more foreign exchange for the country," he adds.

The main spices grown in the country are cinnamon, black and white pepper, cloves and nutmeg. The soil and climate have resulted in superior intrinsic qualities like pungency, aroma, taste, oil and oleo-resin in Sri Lankan spices - compared to other countries' spices.

However, we stack up rather poorly on productivity parameters. Take pepper, for instance: Malaysian farms yield 3,000 kgs per hectare, whereas the Sri Lankan average is less than 500 kgs per hectare. "Our farmers are accustomed to looking at unit price per kilogram, instead of yield per hectare," explains de Silva, while confirming that there is potential to double this with better agronomic practices.

Cinnamon: Shortage of Peelers
Cinnamon is the major spice of Sri Lanka, accounting for almost 60% of the island's spice exports. More than 90% of the island's produce is exported. We have two fundamental problems: quantity and quality. Besides, margins are comparatively low, due to te high cost of peeling, fertilizer and weeding – one can barely expect a 25% margin on a well-maintained estate.

De Silva comments, "We don't have adequate production to meet current demand; the export market can easily absorb an additional 4,000 to 5,000 metric tons – even more, if available in better qualities. We can sell 'Grade C-5 Special Alba' and similar grades to Mexico, where demand is the highest, at US$ 7 to 10 per kg."

"However, peeling is a highly skilled job and we are facing an acute shortage of peelers. If not for that, we could increase output by 3,000 to 5,000 tons in one year - as most estates are not harvesting twice a year," says de Silva. He goes on to describe tea-pluckers, rubber-tappers and cinnamon-peelers as being treated the worst of all the social strata. This is one of the main reasons for this depletion – and needs to be changed.

Pepper: Opportunity Lost
KOSWANA, Matale -- T D Karunasena was in his twenties when his parents started pepper cultivation in 1972. The solar dryer that he has recently installed enables him to dry pepper in two days instead of four. He does not need to watch the skies for rain or keep animals away. This provides him more quality time to spend with his children than his parents could ever afford to spend with him.

Today, Karunasena is president of the Koswana Gamunu Farmers' Organisation in Matale. He gestures towards his tractor and van as assets that he has acquired as a consequence of better prices for his produce. "Pepper pays," he says quietly. His cost of production is Rs 60 per kg, and the selling price is almost Rs 400 per kg. During the past year, he has dried and sold nearly 1,500 kgs, a quantity that would have been inconceivable before he acquired his solar dryer.

Light pepper berries, typically harvested in four months, have maximum oleo-resin content. Buyers are therefore willing to pay a slightly better price - 5 to 10% more per kg. Producers seem to ignore the fact that, had they waited a couple of months more, the berries would have become 'heavy' and increased in weight by about 50%. Here, time is money - quite literally - and the DEA is trying to get this message across.

"We are not producing enough heavy pepper berries. By harvesting light berries earlier – and exporting them to India, our producers lose value addition," explains de Silva. India extracts and exports the oil and oleo-resins all over the world as 'Ceylon pepper', which has a piperin content of 13% - the highest in the world. (Piperin is what gives pepper its strength and pungency).

Cloves: Infinite Potential
Cloves have excellent long-term potential; de Silva describes demand as "extremely high". In his opinion, the DEA has been soft -pedalling cloves because it takes seven to ten years for the tree to 'come into production'. Moreover, prices tend to drop when the harvest comes in. The financially weak farmers sell their produce to traders who have the wherewithal to buy them out.

Nutmeg: Killing the Goose
A similar loss of opportunity takes place in the case of nutmeg, which triples in weight when allowed to mature. This would have enabled the farmer to earn three times the money. To compound matters, the per-kilogram market price for immature nutmeg (say Rs 200) is also lower than the price for mature nutmeg (say Rs 280). Spice exporters like PODIE and Biofoods have been at the forefront of the awareness-building exercise. They advise the farmer not to sell immature produce but to wait and get the higher prices that these exporters are willing to pay (say Rs 360).

Just 5% of Sri Lanka's spice exports are in nutmeg, which is typically grown in home gardens. Farmers sell immature nutmeg due to the desperate need for hard cash. Another reason for selling early is that thieving is a major issue in producing areas and growers need to harvest before thieves do!

Drying: Changing Times
One universal problem that the industry faces is the drying process. A moisture content of 12% is well accepted for dried products.

All these years, farmers have traditionally dried their produce in the open. Spices are dried virtually anywhere – on roads and on cement floors, where dogs sleep and chickens scratch for food. Such open drying gives incompletely dried spices that are of inferior and inconsistent quality, often contaminated with germs due to mould infection.

Shireen Samarasuriya, the National Coordinator for UNDP's Global Environment Facility/ Small Grants Programme (GEF/ SGP), says, "Drying pepper on the roadside is unsanitary; correct drying is very important. With solar dryers, quality is good; the colour and smell are preserved; exporters like this quality. We have not really had a good dryer until now."

Things have been changing ever since the DEA started advising farmers on how to improve the quality of their produce. A solar dryer designed by the University of Ruhuna made it possible to dry spices even during harvesting seasons that coincide with the monsoons.

Through a process of experimental trials, they have designed what is arguably the best dryer in the country.

The Saviru renewable energy project is an endeavour to introduce solar drying technology to produce high quality spices. Explaining the background, Kapila Weeratunga Arachchi of UNDP-funded AfATE (Alliance for Appropriate Technology Exchange) says: "We had to introduce technology that is appropriate – what the farmer can afford, handle and understand." The drying process was researched and the equipment was designed and developed.

Generation 1: The Tunnel Dryer
Arachchi, who was conducting research on solar and other methods of drying, had to find implementation funding. In response to UNDP GEF/ SGP's call, he wrote a proposal linking renewable energy with rural economic development. GEF/SGP accepted his proposal for the drying experiment - and the rest, as the cliché goes, is history.

The SAVIRU solar tunnel dryer is made partly of fibre-glass and typically measures 24 ft long by 3 ft wide. To achieve the optimum temperature of 60 degrees Celsius, two small fans blow air through the tunnel. A separate bin dryer is provided for final drying that is especially useful during wet weather. The price (which started at Rs 28,000) has escalated to Rs 37,000 over the past two years.

Passing the Versatility Test
Until 2004, S J Gunasekara used to work in Anuradhapura, for an insurance company. After opting for voluntary retirement, he returned to his ancestral home in Galekoluwa. There, he learnt the spice trade from his father, who had been in the business for twenty years.

Having adopted scientific practices, Gunasekara says, "Buyers can easily spot the difference between solar dried and open-dried spices by the cleanliness. They are willing to pay a premium of at least Rs 15 to 20 per kg. Besides, there is less wastage." Enquiries reveal that wastage is 2 to 5% - against 20% otherwise. "Even if it rains, there is no problem," Gunasekara says.
While endorsing the efficacy of solar dryers, The Spice Council indicates that it is ideal for small producers' cloves and pepper because the volumes are small. The Sunday Times FT has spoken to farmers who have adapted the technology for dry chillies, bitter gourd, coconut, jackfruit and breadfruit. Test results on microbial quality by the SGS Laboratories show that quality will pass for spice shipments even to European countries.

The Quality Conundrum
Selling of high-quality spices to buyers paying higher prices would improve farmers' incomes substantially. But poor quality leads to low-priced markets, a vicious cycle that needed to be broken.

The market willingly acknowledges the better quality of solar dried spices, but has not been willing to pay the premium. "This was a typical chicken-and-egg problem," says Arachchi. "Spice farmers were selling at prices dictated by the buyer.

The spice industry wanted to improve quality but the trade just wasn't ready to pay a premium…"

By improving the quality of spices, small-scale producers at the village level are now earning prices that are significantly higher than prevailing rural market prices. In an experiment lasting three years, two farmers of Dagonna in Gampaha district earned an extra income of Rs 225,000 on about 6 tons of spices.

Atomised Farmers Suffer
75-80% of spice production comes from farmers who cultivate small plots measuring less than two acres. These 'atomised' farmers have little bargaining power. Farmers have only recently been organized into village-level organizations to facilitate marketing. The Spice Council/ DEA have a model to encourage these villagers to collectivise themselves for better bargaining.

People's Organisation for Development – Import and Export (PODIE) is an NGO buyer in the business of processing and exporting value-added spice products to Europe. It has the reputation of offering prices that are almost twice as much as the village market offers. They also work with small farmer groups like the Koswana Gamunu Farmers' Organisation. Karunasena recalls how he supplied white pepper to PODIE and earned Rs 200 per kg at a time when the rural buyer's best offer was Rs 130.
The closer links that have been created between farmers and buyers have also facilitated more efficient marketing.

More Value Addition, Please!
De Silva speaks of the need to encourage farmers and others to move up the value chain. "That would insulate us from price fluctuations in the world market," he points out. "Grinding is the natural value addition," he says. Then, there could be essential oils, oleo-resins, mixes and formulations. Why, we could even consider house brands for Wal-Mart!"

Generation 2: Saviru Jeewa Dryer
The Saviru Jeewa Dryer has been developed and patented by AfATE. It consists of a drying cabinet that holds lots of 3 foot by 2 foot trays. A fan circulates air through the cabinet to enhance the drying process. The dryer includes an external hot air generator, heated by a compact downdraft burner that burns gliricidia wood – an abundant local fuel resource. Interestingly, the gliricidia tree is used as a support for pepper vines and its leaf is useful for goat fodder and mulching.

In 2006, Sri Lanka showcased this technology at the International Pepper Community, the largest international gathering of pepper-producing and -consuming countries.

The Spice Council is developing a model Spice Processing Center in Galekoluwa, Matale, to demonstrate good manufacturing practices. A 450-kg Saviru Jeewa dryer has already been installed there. This has been assisted by The Competitiveness Program of USAID.

Farmers in Kandy , Matale and Gampaha have been given subsidies by UNDP's GEF/ SGP scheme. They have also been taught to access the market. Of the UNDP's contribution, Samarasuriya says, "We are trying to address the issue of how to use solar dryers in the spice industry."

Government Can Help
With this new-found awareness, the spice industry has been seeing a revival of interest in Sri Lanka lately. Much, however, remains to be done, and all eyes seem to be focused on the government. Samarasuriya says, "We can only show the way. Others - like the government - must get something going on a commercial scale. We have our hands full with 115 different projects at various stages of progress."

De Silva points out that there is very little investment by the government in comparison to the export earnings.

The potential of the sector could grow exponentially if we could add value and increase productivity. "Though the DEA has 900 employees, its research and extension services divisions are short-staffed and need further strengthening." "Our spice exports were on par with India's in 1984," says de Silva.

Then the Indian government made huge investments: They subsidized new processing and grinding plants; they supplied electricity at subsidized rates; they provided easy financing for extraction units. Today, they are number one in the world oleo-resin industry."