The traditional supply chain of spices in Sri Lanka consists mainly of small scale producers. Over 200,000 small scale growers are involved in spice cultivation where 70 per cent of production comes from smallholder farm units of less than 1 ha of land. Many of them are part time farmers with other sources of income. Only a small group of producers have commercial orientation and are willing to improve productivity. Because of this lack of investment, the supply chain has some fundamental problems that need to be dealt with: 1) purchasing is decentralized; 2) the quality of products is low; 3) there is a strong presence of middle-men in the chain. These limitations are affecting the competitiveness of smallholders who grow spices for the domestic and export markets.
As a response to this weak competitiveness of smallholders, MA’S Tropical Food Company has introduced an innovative “business model”. Through this model, the company assists smallholders in different ways: 1) assisting smallholders on organizing themselves (alone and in farmers’ organizations); 2) shifting the company’s procurement system from decentralized to centralized; 3) training extension officers to support farmers; 4) setting private standards and paying premium prices for farmers who achieve them; 5) improving logistics and inspection. This model has mutually benefited the parties involved in the supply chain. This model has been in existence for about a decade, but the company has not yet reached its potential capacity. The company still has scope to increase its capacity and greater inclusion can also be ensured by mitigating the other evidences of exclusion of operational nature. Since only a limited number of companies are operating in this region with a large number of farmers, opportunities for replication of this innovation are abundant.