A new study by the Colombo-based Institute of Policy Studies Study shows the broader agrifood sector contributes 24.5 per cent of GDP and 42 per cent of jobs, identifying six high-potential export clusters while flagging tariffs and low R&D as key constraints.

Sri Lanka’s agrifood sector holds significant untapped potential to drive export growth, create higher-productivity jobs and support long-term economic transformation, according to a new study by the Institute of Policy Studies of Sri Lanka (IPS).

Authored by IPS Research Fellow Dr Asanka Wijesinghe and conducted as part of the World Bank’s Country Growth and Jobs Report, the publication, High Value and Export-Oriented Agribusiness: Unlocking Agri-food Sector Potential in Sri Lanka, finds that while primary agriculture accounts for just 8.3 per cent of Gross Domestic Product (GDP), the broader agrifood system – encompassing primary production, agro-processing, food services, input supply and related trade and transport – contributes 24.5 per cent of GDP and 42 per cent of total employment.

This wider contribution underscores the sector’s central role in economic growth and job creation at a time when Sri Lanka continues to prioritise export expansion and private investment. Recent official data show agricultural activity contracted in the second quarter of 2026 even as overall GDP grew 4.2 per cent, highlighting both vulnerabilities and the need for structural shifts toward higher-value activities.

Agrifood Sector’s True Economic Weight

The IPS analysis emphasises that conventional national accounts understate the sector’s importance. Primary agriculture’s share of GDP has declined steadily from 32.1 per cent in 1960 to 8.3 per cent in 2024, while the agricultural labour force remains around a quarter of total employment. Rice and beverage crop cultivation, including tea, still accounts for a large share of primary agricultural jobs.

When downstream activities are included, the picture changes markedly. Food and beverage manufacturing, in particular, offers a direct pathway from agriculture to industry. Agriculture supplies 38 per cent of food-processing inputs, while food processing sources 19 per cent of its inputs from domestic agriculture. Strengthening productivity on the farm and expanding processing capacity are therefore mutually reinforcing, the study argues.

Six Export Clusters with Strong Growth Potential

The research identifies six export clusters combining established comparative advantage with demonstrated growth: cinnamon, other spices such as pepper and vanilla, coconut-based products, fruit and vegetable processing, seafood, and tea.

Agri-food exports accounted for roughly 29–30 per cent of total goods exports between 2010 and 2024, rising in absolute terms from US$ 2.5 billion to US$ 3.5 billion. The agro-processing share of total goods exports recovered from 12.8 per cent in 2015 to 15.7 per cent by 2024, indicating gradual progress in value addition.

These clusters align with broader national ambitions. Sri Lanka has set a target of building a US$36 billion economy by 2030, with plans to nearly double export earnings and prioritise processed food and beverages among other sectors.

Constraints Holding Back Growth

Despite the opportunities, the study finds the sector’s potential constrained by several structural factors. A complex, multilayered tariff structure creates a systematic anti-export bias. Ad hoc revisions to para-tariffs raise regulatory uncertainty for investors and exporters. Investment in agricultural research and development has averaged below 1 per cent of agricultural GDP, falling short of Food and Agriculture Organization benchmarks. Support for value-added production remains inadequate.

Policy uncertainty and institutional bottlenecks further limit private investment in processing, branding, technology and product development. As a result, much of the potential value from internationally recognised Sri Lankan products continues to be captured outside the country.

Policy Recommendations for Transformation

The IPS study stresses that developing food processing based on agricultural commodities offers a clear route from farm to industry. The study recommends a package of reforms: phased reform of the Special Commodity Levy, introduction of a rules-based tariff calendar to reduce uncertainty, redirected public investment toward research, development and extension services, and institutional changes including longer lease tenures for regional plantation companies and a single digital window for agricultural input approvals.

These measures, the authors argue, would enhance Sri Lanka’s export competitiveness, shift labour toward higher-productivity employment and support durable economic development. Strengthening the linkages between primary production and processing is presented as critical to sustaining growth.

Broader Context and Recent Trends

The findings come against a backdrop of mixed recent performance. Coconut and coconut-based products recorded strong export growth in the early months of 2026, while tea faced headwinds from geopolitical tensions affecting key Middle Eastern markets and higher shipping costs. Processed food and beverages have shown resilience, reflecting rising global demand for value-added products.

External risks, including weather patterns linked to El Niño and global commodity price volatility, continue to affect agricultural output and food security. At the same time, international support, including World Bank financing aimed at modernising farming practices and attracting private capital into agribusiness, provides additional opportunities for reform and investment.

The IPS study positions high-value, export-oriented agribusiness as a strategic lever for Sri Lanka’s recovery and long-term competitiveness. By addressing tariff distortions, policy unpredictability and underinvestment in knowledge and infrastructure, the country can better convert its agricultural strengths into higher export earnings, more productive jobs and broader economic gains.