Sri Lankan halal food sector innovates to survive during worsening economic crisis

The island nation declares a state of emergency as foreign reserves fall to levels that jettison options for importing key commodities.

Sri Lanka’s halal-certified food and beverage industry must investigate innovative ways to weather the country’s deep economic crisis, currently spiralling out of control to the extent a state of emergency was imposed on Friday (6 May), and the prime minister resigning on Monday (9 May).

Its success or failure matters because, according to the Halal Accreditation Council (HAC), exports account for 65% of Sri Lanka’s food and drink total exports and generated average annual receipts of $2.56 billion between 2016 and 2020.

The current economic crisis is the worst since independence from Britain in 1948 with Sri Lanka so short of foreign reserves, it cannot import key commodities. Finance minister Ali Sabry told the national parliament on 4 May foreign reserves were “well below $50 million”.

This is causing severe shortages of staple foods, medicines and fuel, triggering regular power outages. The lack of essential supplies pushed annual inflation to 29.8% in April 2022 (March 2022: 18.7%), according to Central Bank of Sri Lanka data. Consequently, halal exports have suffered.

HAC director Aakif Wahab, who heads the country’s sole halal certification entity, told Salaam Gateway halal food and drink manufacturers trading Sri Lanka-sourced products face multiple challenges. The island’s indigenous cash crops are dominated by tea, spices and coconut-based lines.

For these to compete globally, packaging is key, but “right now packaging material is expensive and in short supply, due to the foreign exchange (forex) crisis combined with an escalating cost of freight”. There are also a limited number of vessels entering the country.

It is even worse for manufacturers whose products consist of a majority of imported raw materials such as milk powder, gelatine, pre-mixes, flour, oils and fats for whom securing overseas supplies was tough.

“The short-term outlook is extremely challenging,” Wahab said.

Beyond the forex shortages, the Sri Lankan rupee has been collapsing, undermining the purchasing power of importers. It was trading at Sri Lankan rupees LKR 369/$1 on 5 May compared to LKR 249/$1 on 14 March. The government has also imposed import restrictions on foreign foods deemed non-essential (taking into account domestic supplies) such as milk products, fruits and fish.

Halal is an important sector for Sri Lanka even though just 9.7% of this majority Buddhist country is Muslim. Wahab said HAC has halal-certified 90% of Sri Lanka’s leading food and beverage products. These include globally recognised brands such as Dilmah Ceylon Tea Company, Nestlé, Knorr (Unilever), Flora (Upfield) and food service franchises operating on the island – Kentucky Fried Chicken (KFC), Pizza Hut, McDonald’s, Taco Bell, Pastamania and Burger King.

Wahab said with scarce supplies, the Sri Lankan halal food and beverage sector has been forced to look for halal-certified alternative raw materials or have narrowed their range of products.

M. Rizvi Zaheed, chairman of Oceanpick Pvt Ltd, a sustainable oceanic fish farm company and chairman of the Sri Lanka Agripreneurs’ Forum, told Salaam Gateway the halal sector was innovating to survive. Groups of small food producers were collaborating with larger farms or manufacturers, including halal groups, in “nucleus farmer outgrower schemes” where a major plantation, processor or manufacturer (including halal companies) provide small farmers with inputs and resources under contract.

This has proved especially useful after the government last year banned chemical fertilisers in favour of organic fertiliser – without providing the know-how – and caused crop failures; forcing the government to import rice for the first time. He added halal companies were negotiating lengthier credit periods and alternative financing methods to handle the shortage of packaging material.

Zaheed added exploring new niche markets was also key.

Backed by the HAC’s stringent yet facilitative processes, local companies were intensifying their focus on interesting niche markets. One example was ethnic markets servicing Asian and Arabic food preferences in North America, Europe and Australia.

Local food companies were also targeting health food segments including immunity boosting foods based on spice and herbal products. On the export front, companies were using global distribution partners to “promote value-added products where Sri Lanka has competitive advantage,” said Zaheed.

These include halal-certified processed fruit and vegetable products, value-added teas, spices, coconut kernel products and bakery products – including jackfruit-based meat substitute products in value-added forms exported under brand names such as Suboga Healthy Food Products, Eudora Tea, Island Magic coconut oil and Lanka Exports that sells a wide range of food lines including spice and coconut products.

On the flipside Zaheed said the steady depreciation of the Sri Lanka rupee would help exporters “remain competitive” although, in the long-term, higher import costs could erode margins and competitiveness. Sri Lankan halal certified food companies were also strengthening their food brands, riding on the reputation of traditional products such as Ceylon Tea and Ceylon cinnamon.

Local halal-certified brands such as Akbar were proactively marketing tea, including instant tea and value-added teas, as halal certified. Similar sales strategies were being pursued by Sri Lanka’s Dilmah (black, herbal and flavoured teas); Bairaha Farms (chicken-based processed meat); Baraka (health products and coconut-based lines); MA’s Kitchen (spices and condiments, precooked curries and rice mixes); Dad’s Garden (spices, condiments, sauces and pickles); CIC (dairy and poultry products); Crescent Fine Foods (meat-based processed lines, bakery products and snacks); Elephant House (ice-creams and desserts) and HJS Condiments Island Magic fruits and vegetables in juices and brine.

The industry is also targeting business-to-business (B2B) for halal-certified exports sales. Costco Kirkland own brands are buying halal-certified dehydrated fruit and snacks from Sri Lanka’s HJS Condiments, while McDonald’s, Burger King, Subway and other global brands are prominent foreign buyers of exported Sri Lankan halal foods.

“With the economic crisis continuing with no end in sight, Sri Lanka’s halal food and drink sector will need all this determination and flexibility to stay afloat to benefit from more prosperous times in future,” he concluded.

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