Direct Trade

SEDCO helps interested producer groups develop collective marketing systems and direct trade linkages for products like seed paddy, rice, fruits and vegetables, coconut fiber (coir) products, milk and yogurt, fresh fish, dried fish, kithul products, terracotta housewares, handloom fabrics and natural paper.

Need for Service

Most rural value chains in Sri Lanka have characteristics of a trade monopoly (or oligopsony). Markets tend to be dominated by a few urban-based traders with storage, processing, transport, and retail facilities and strong political ties. There is a significant gap between the price paid to the producer and the end retail price. Monopolistic traders are able to capture a major portion of the value chain and transfer the benefits to urban centers.

SEDCO focuses on increasing the share of the value chain captured by rural producers or retained within rural areas. This approach is more complicated than simply identifying new buyers or input suppliers to bypass existing trade relationships. The following challenges are common:

• Many rural producers purchase inputs on credit from the same traders that purchase their products. This locks them into selling their product to a specific trader. For producers to access new markets, they need to reduce their dependency on money-lending traders. It takes time to establishing revolving loan funds or links with formal financial institutions.

• As individuals, most Sri Lankan producers only market small quantities. This means they have very little bargaining power. Even buyers that would prefer to purchase directly from rural producers are unable to bear the cost of dealing individually with a large number of small-scale producers. It takes time to establish the collective marketing systems that enable small-scale producers to provide significant volumes.

• Most families have a range of livelihood activities. For example, an 'agricultural' family may produce more than 15 crop or livestock products, harvest fish and produce handicrafts for domestic markets. This diversified production has significant environmental and economic benefits, but it increases the complexity of collective marketing requirements.

• Producer groups need substantial experience and institutional capacity to be able to successfully engage in collective marketing. Production needs to be coordinated to fill orders with a consistent volume and quality. Transparent collection and payment systems, quality control systems and financial management systems need to be established.

• Most buyers do not pay upon receipt. There is generally a payment delay of one week to 3 months. Producer groups need substantial working capital to market collectively. Depending on the product, they may also require an initial investment in collection and storage facilities.

• There is a large distance between most rural producers in Sri Lanka and their end consumers. In order to establish direct trade links, they need access to information on market demand and support to transition to market oriented production, for example: new handicraft designs, new fish drying techniques, new crop varieties or different cropping patterns.

• Sri Lanka's local trade monopolies can be economically and politically powerful. If their interests are threatened, they are able to put pressure on individuals and block access to input suppliers or alternative buyers. Rural producers must be united to market their products collectively.

Each sector and each geographical area generates unique challenges that can only be addressed through a long-term process oriented approach.

Our Approach

If a producer group is interested in purchasing inputs or marketing products collectively, district or regional SEDCO focal points work with them to:

• Assess input and production volumes, institutional requirements and potential opportunities.

• Prepare a business plan that includes strategies for collection and quality control, financial projections and investment requirements (if any)

If an investment is required for working capital or collection facilities, the business plan and an investment proposal can be submitted to the SEDCO Board of Directors. The SEDCO Board serves as an independent body that manages the SEDCO investment fund and makes decisions based on financial viability and social impact. (See value chain investments.)

SEDCO facilitates forward trade linkages with buyers and backward linkages with input suppliers. When a new direct marketing link is formed, the agreement between the producer group and buyer includes a volume-based trading fee to cover SEDCO operational expenses and services. The trading terms must be transparent to all involved parties.

Once a direct trade link is established, SEDCO coordinates training, business advisory services, and institutional capacity building support as required to ensure that:

• Efficient collection and quality control systems are established,

• Producer groups maintain an equitable and democratic shareholder structure,

• Financial management is transparent,

• Health and environmental standards are upheld, and

• Orders are filled with a consistent volume and quality.