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NATIONAL SCIENCE
Small and Medium Mushroom
Enterprise in Sri Lanka: a Case
Study on the Innovation System
involved
Science & Technology Policy Research Division National Science Foundation
47/5,Maitland Place Colombo -07
20\0
Small and Medium Mushroom Enterp
in Sri Lanka: a Case Study on the
Innovation System involved
Compiled by
P.R.M.P. Dilrukshi Ranathunge, PhD Chathurani Rankothge
and Seetha L Wickremasinghe, PhD
Science & Technology Policy Research Division National Science Foundation
47/5, Maitland Place Colombo -07
2010
Copyright (©National Science Foundation (NSF), Sri Lanka 2 0 0 8 .
No part of this report may be reproduced, photocopied or distributed in any form or by any means without prior written authorization from Director, National Science Foundation, Sri Lanka
All enquiries and suggestions should be forwarded to>
Di rector
National Science Foundation
4 7 / 5 , Maitland Place
Colombo 7
Tele:+094 11 2 6 7 5 8 4 1
Fax: +094 11 2 6 9 4 7 5 4
e-mail: [email protected]
URL: www.nsf.ac.lk
Small and Medium Mushroom Enterprise in Sri Lanka
Case Study on the Innovation System involved
Contents
Abstract 2
Introduction 3
Literature Review 4
Methodology 6
Results and discussion 9
Conclusion 16
Acknowledgement 17
References 17
Abstract
Small and medium scale mushroom enterprise is a good opportunity for farmers or
villagers who are interested in an additional income and it is an ideal option for farmers
without much land. In addition to its culinary appeal, the nutritional value and medicinal
properties create a high demand for mushroom in both local market and international
market today. Mushroom growing programmes have been introduced to people in the
rural areas as a self-employment through many government and non-government poverty
alleviation programmes. However, the impact o f this industry to the country's economy
or the actors engaged in this enterprise and their role has not been investigated so far.
Therefore, as an initial step, the present survey was designed to study the small scale
mushroom growers in the country and to find out the problems and constraints faced by
them plus the different people and institutions involved in their enterprise development.
The mushroom growers at villages located in the Kaiutara district was selected for the
case study. The direct interview method using a structured questionnaire was employed
to collect information from 4 0 farmers. The sample contained 5 6 % female and 4 4 %
males o f various age categories. Most o f the farmers ( 5 3 % ) were new to the enterprise
and still in the process o f getting established while 3 5 % was involved for more than one
year and 12% had involved in less than 1 year. O f the total farmers, 1 5 % was involved in
the mushroom cultivation as an additional enterprise while for 7 5 % , it was the main
enterprise. The farmers buy seeds from the government agriculture centers or private
sales outlet in their village or a few burrowed from friends. The sale o f products was
done by themselves, directly to customer or through a retailer or a middle person or they
directly sell to exporters or wholesalers or hotels. Only 2 % o f the farmers were involved
in export and all o f them were male. The lack o f knowledge in mushroom culturing,
disease management, financial assistance, business management, finding local or foreign
markets, producing value added products o f mushrooms were mentioned as problems by
farmers. They also expressed their needs for more cost effective growing media,
packaging methods, viable high yielding seeds, new mushroom types, storing methods as
well as support in terms o f financial and training to expand their enterprise.
Keywords: Mushroom, Cluster study, mushroom growers, Innovation, Sri Lanka
2
Introduction: Sri Lanka has about 7 0 % o f its population living in the rural areas and their main income
source is agriculture. Agriculture sector contributes to 1 2 % o f GDP o f the country
(Central Bank o f Sri Lanka, 2 0 0 8 ) while 2 4 . 6 % R & D expenditure is spent on agriculture
R & D (NSF, 2 0 0 6 ) . Although the contribution o f Agriculture to GDP o f the country has
significantly decreased over the years, it is an important determination o f GDP directly
accounting for about 1/5* o f the national output and employing directly more than l / 3 r d
o f the labour force ( 3 6 % ) providing inputs from the agricultural processing industry and
supplying a large share o f domestic food requirements. However, due to low income
through the existing agricultural practices, the rural sector farmer falls below the poverty
level with a less than monthly income o f around 2 0 US$. Therefore, it is important to
explore the opportunities in agricultural applications to help improving livelihood o f the
rural farming community.
The small-scale mushroom production represents an opportunity for farming
community interested in an additional income and is an ideal option specifically for those
without much land. Mushroom farming also can play an important role in managing farm
organic waste when agricultural and food processing by-products are used as a growth
media for edible fungi. In addition to its culinary appeal, the nutritional value and the
medicinal properties create a high demand for mushroom in the international and local
market today.
3
The government o f Sri Lanka and many other government and non government
organizations are involved in promoting mushroom farming as a self-employment in the
country and the production o f these mushrooms have high demand in both local and
foreign market. However, the impact o f this small and medium enterprise to the country's
economy or the actors engaged in the whole activities o f the mushroom industry has not
been investigated in the country to date. This case study describes an innovation based
small scale entrepreneurship in Sri Lanka with intervention that brought together rural
community, public sector research and scientific institutions, private sector companies,
banks, market dealers, extension services etc. , and how these actors are involved in a
network that forms a small innovation system towards the socio-economic development
o f the country.
L i t e r a t u r e Review
The National Innovation System (NIS) concept towards country's socio-economic
development was first gained attention when Freeman ( 1 9 8 7 ) and Lundwall ( 1 9 9 2 )
brought forward their discussions on the idea o f innovation and how it operates as a
complex system o f phenomenon. According to them, this system operates through
networks o f research, entrepreneurial and other actors interacting to produce and use new
knowledge. As observed by Nelson i n l 9 9 3 , the NIS is a set o f institutions whose
interactions determine the innovative performance o f national firms. Patel and Pavitt
( 1 9 9 4 ) were o f the view that the national innovation system is a web o f national
institutions, their incentive structures and their competencies, that determine the rate and
the direction o f technological learning (or the volume and composition o f change
generating activities). Metcalfe, 1995 explained that a set o f distinct institutions which
jointly and individually contribute to the development and diffusion o f new technologies
and which provides the framework within which government form and implement
policies to influence the innovation process. As such it is a system o f interconnected
institutions to create, store and transfer the knowledge, skills and artifacts which define
new technologies. Edquist ( 1 9 9 7 ) stresses that NIS can evolve further knowledge that
involves new uses o f old knowledge or new combinations o f existing knowledge. As a
result, capabilities, linkages, networks, and changes in the institutional arrangements may
4
change from time to time with new technology based results and supportive policy
regimes that are o f equal importance. Application o f the innovation systems approach has
been also explored by the Organization for Economic Cooperation and Development
( O E C D , 1 9 9 7 ) and its members (Arnold and Bell, 2 0 0 1 ) , the United National
Commission on Trade and Development, the European Commission, and more recently,
the World Bank. Other applications o f this innovation concept can be seen in the work o f
Douthwaite ( 2 0 0 2 ) ; Hall et al. ( 2 0 0 3 ) ; Biggs and Matsaert ( 2 0 0 4 ) ; Raina ( 2 0 0 4 ) etc.
Further, the role o f knowledge in an innovation system is also very important.
Knowledge can be categorized in many ways as scientific /technical knowledge or
organizational/managerial knowledge, as well as codifies/explicit and tacit /implicit
knowledge (Hall et al., 2 0 0 2 ) . Knowledge may also be embodied in some good or
service; or technology; or it may be distinct, disembodied, and complimentary,
knowledge can be obtained through public research organizations, private laboratories,
and universities and also can emerge through the practice and behavior o f individuals,
households or civil societies (Clark, 2 0 0 2 ) . According to Wickremasinghe ( 2 0 0 6 ) , the
NIS concept, which deals with important elements such as innovation and learning, is
still novel to Sri Lanka where interaction among various actors and institutions involved
in technological innovation play a vital role. She mentions the importance o f paying
attention to the fact that how the entities such as government policies, R & D activities,
education system, culture, history, traditions etc. , play their roles in this system towards
ouo-economic development in Sri Lanka.
Sliced Button Mushroom
5
Methodology:
Background knowledge to the small and medium scale enterprises ( S M E s ) and
Innovation Systems (IS) was gathered through literature survey and a cluster o f village
community who are involved in cultivation, production and marketing o f mushroom
products was selected in consultation with the Vidatha Project Division o f the Ministry o f
Technology and Research.
The rural village community who was engaged in mushroom production in the Kaiutara
District o f Sri Lanka was selected for this case study. The cluster study method was
employed to collect data by making several field visits, direct interviews and also using a
structured questionnaire designed for the purpose. Using the primary information
gathered from the mushroom growers, the study was further extended to investigate the
role o f various actors and linkages. The qualitative and quantitative data gathered were
then analyzed to understand how the system operates and a framework was then
developed to explain as to how this small and medium scale enterprise works as an
innovation system.
Packed mushroom bags after inoculation
Mushroom growing stage
Women entrepreneur examining growing mushrooms
Results and discussion:
Research team having discussion with village community
Forty farmers representing different villages in the Kaiutara district were interviewed to
collect the primary information pertaining to the study. The sample contained 5 6 %
9
female and 4 4 % male farmers o f various age categories. Most o f the farmers ( 5 3 % ) were
new to the enterprise and still in the process o f getting established while 3 5 % was
involved in more than one year and 1 2 % was involved in less than 1 year. O f the total
farmers, 1 5 % was involved in the mushroom cultivation as an additional enterprise while
7 5 % as their main enterprise. Their monthly income due to mushroom cultivation varied
from SL Rs. 5 0 0 0 / - to 2 0 , 0 0 0 / - (US$ 5 0 - 2 0 0 ) . All o f them managed the industry as a
family business. The main capital for the commencement o f the enterprise was gained by
family funds and loans obtained by the government, private banks or personal loans from
others. Since this enterprise was mostly managed by family or friends, the labour was
shared among themselves. 8 2 % o f the farmers had undergone training from the
government departments, centers or through the projects conducted by non-government
organizations. The farmers obtained seeds from the government agriculture centers or the
sales outlet in their village or a few burrowed from friends. The majority ( 7 3 % ) used the
saw dust as growing substrate o f the mushroom. They bought this substrate material from
the village saw mills. The sale o f products was done by themselves, directly to customer
or through a retailer or a middle jperson or they directly sell to exporters or whole sale
dealers or to hotels (Table 1).
Table 1: Selling method of mushroom
Activities of rural community towards marketing % farmers involved
1 Packing and selling directly to consumer 21 2 Packing and selling to retailers 15 3 Through middle person to consumer and retailers 32 4 Sell stock to one direct buyer (hotel, exporter etc ) 2 1,2 Packing and selling to consumer and retailer 16 1,2,3 Selling directly to consumer, retailer and middle person 5
Packing and selling to consumer and middle person 5 2,4 Packing and selling to retailer and selling stock to one
person 2
1,2, 3 ,4
Packing and selling to consumer, retailer, middle person, and selling stock to one person
2
Total sale 100
10
Mushroom soup Other mushroom products
Most o f the mushrooms produced in home based farms are the common varieties such as
Oyster and Abalone. However, there is growing demand for other special mushroom
types from exporters and hotel industry in the country. O f the farming community who
took part in this case study, nearly 6 0 % were females. Some o f them were new to the
enterprise and still in the process o f getting established while others were involved in
quite a long duration. O f the total farmers, 1 5 % was involved in the mushroom
cultivation as an additional enterprise while 7 5 % as their main enterprise. All o f them
managed the industry as family business. The main capital for the commencement o f the
enterprise was gained by family funds and loans obtained by the government, private
banks or personal loans from others. Since this enterprise was mostly managed by family
or friends, the labour was shared among themselves. 8 2 % o f the farmers had training
from the government departments, centers or through the projects conducted by non
government organizations. The farmers obtained seeds from the government agriculture
centers or the sales outlet in their village or a few burrowed from friends. The majority
( 7 3 % ) used saw dust as growing substrate o f the mushroom. They bought this substrate
material from the village saw mills. The sale o f products was done by themselves,
directly to customer or through a retailer or a middle person or they directly sell to
exporters or whole sale dealers or to the hotels.
Only 2 % o f the farmers interviewed were involved in export and all o f them were male.
The main reason for limited involvement in export business was the lack o f knowledge in
export activities, as well as the inadequate facilities, knowledge or experience in
11
providing continuous supply o f mushroom harvest. The number o f growers involved in
value added products o f mushroom was low ( 3 0 % ) and they were all females. The
extension service o f the government is in practice but this link should be further
improved. The details o f constraints and the problems faced by the farmers are indicated
in Table 2. In addition, the farmers also expressed their needs for knowledge in disease
management, cost effective substrates, packaging, storing methods as well as support in
terms o f financial and training for expanding their enterprise. The main organizations that
farmers have links with, for training and obtaining seeds and other relevant information
were the Export Development Board, Department o f Agriculture, and Vidatha Centers
operated under the ministry o f Science & Technology. They did not have direct links
with researchers or training institutions that conduct training programmes in mushroom
cultivation, packaging or business management etc.
Mushroom products for export market
Table 2: Problems and constraints faced by mushroom growers
Constraints % farmer response
Lack o f guidance to culture mushroom and to carry out business 92
Financial problems in initiation anc expansions 8 0
High cost o f fertilizer and other chemicals 62
Labour cost involved 16
Lack o f proper storing facilities 4 8
Lack o f proper cold room facilities 9 9
Inadequate knowledge in packaging 18
12
The study revealed that extensive research has been done by the Department o f
Agriculture ( D O A ) to address all sorts o f research problems from mushroom cultivation
and seed production to value addition. A separate Division has been established in the
DOA to deal with research and extension work relevant to mushroom. However, the
discussions with researchers and extension officers attached to the DOA indicated that
due to limited funds for R & D , mushroom production, as an agricultural commodity, does
not get priority funding. Due to this reason there are gaps in extension services, they
admitted.
The scientific institutions such as National Science Foundation also have conducted
various supportive programmes in collaboration with Sri Lanka Association for the
Advancement o f Science ( S L A A S ) , Institute o f Post-harvest Technology ( IPHT) ,
Industrial Development Board ( IDB) , Industrial Technology Institute etc. , to educate
farmers in overcoming diseases, packaging, value addition etc.
Through various micro-financing schemes, the state banks such as the Peoples Bank
o f Sri Lanka, S A N A S A Development Bank, and Lanka Puthra Development Bank
support mushroom enterprise as a commodity under the sub sectors o f agriculture. The
Peoples Bank also has established a Vidatha (taking technology to village) Loan Scheme
to provide credit facilities to entrepreneurs who are being trained and introduced by the
Vidatha Resource Centres established by the Ministry o f Science and Technology.
The local NGOs such as Sarvodaya and a few foreign NGOs are also involved in
assisting the mushroom growers: mainly via training and participatory approach and
extension and knowledge dissemination activities.
The private companies that are involved in mushroom production, marketing and
export expressed that they rarely have any contact or links with the government R & D
institutions. They get their employees trained via overseas contacts that they establish by
taking part in various business exhibitions in the neighboring countries. There was
reluctance by the private sector to:establish direct links with the government departments
and research institutions due to IPR issues. However, they admitted that there will be a
big impact if their research problems could be solved by the support o f the government
R & D institutions through the public private partnership (PPP) .
13
The exporters who are involved in mushroom export also did not have any health
linkage with R & D institutions especially in regard to packaging and cold storage
problems. They said that it is mainly by learning and doing practice they employed.
The consumers were o f the view that mushrooms were not available in the market
as and when required. In addition, due to its high water content, they had to pay more to
prepare a dish that is sufficient to the family when compared to other vegetables. They
agreed that they all loved to eat mushroom otherwise.
Table 3: Summary of the actors or institutions involved and their roles in mushroom industry
Actors/ institutions Role/responsibility
Male and female farmers (Rural farming community)
Mushroom cultivation and/or sale
Government policy (Mahinda Chinihana)
Village development and prosperity
Researchers (Dept. of Agriculture i.e. HORDI)
Research and extension activities
Scientists (S&T institutions)
Knowledge dissemination and other services
Banks (Venture capital)
Financial support through various loan schemes
Inst.of Post Harvest Technology (IPHT), Industrial Technology Institute (1TI)
Promote and develop technology for value added products
Vidatha Resource Centres (Ministry o f Science & Technology)
Taking technology to village
Industrial Development Board (IDB) Handling and Packaging
Export Development Board (EDB) Export related activities
NGOs Assist farmers via participatory approach
Middle men Direct purchase from farmers
Private companies Production, marketing & export
Exporters (Private sector)
Buying and export
Funding agencies (Council for Agricultural Research Policy-CARP, National Science Foundation)
Provide financial support through research grants
IPR issues (Intellectual Property Office)
Granting patents for researchers
.
14
Based on the qualitative analysis conducted all views and observations expressed by
the different parties involved the following framework was worked out to the how the
mushroom industry operates as an innovation system in Sri Lanka.
Government Policy Govt, institutes i.e. EDB, HORDI, CARP, ITI etc.
Figure 1: MappnW of kev^fiors in the mushroom production syst at the l o ^ a l X e l (arrows show the strength of linkage)./
Hotels
Govt, finding agencies
Banks
The study further revealed the importance o f strengthening the mushroom production in
the country as a S M E because it benefits the rural farmers are the main beneficiaries
since it involved their livelihood. Hence, by establishing the mushroom producing farmer
clusters all over the country the sustainability o f mushroom industry would be
maintained. The farmers need to provide a constant and better quality yield at a
reasonable price that is affordable to consumer while targeting the foreign market as well.
To achieve this target, availability o f better and low cost substrates, methods o f
maintaining hygienic conditions in the culturing sheds, effective disease controlling
methods, introduction o f new edible mushroom types to the farmers etc. , are essential.
Since there are R & D aspects relevant to above issues, it is necessary to disseminate
15
research findings o f the R & D institutions to small home based farmers as well as to the
large scale mushroom enterprise in the country. Since the availability o f viable and high
yielding seeds has been another problem faced by farmers, a proper mechanism should be
developed to provide viable seeds to farmers through reliable government sources or
training farmers to produce their own seeds. There has to be an effective interaction
between farmers and agriculture extension officers in regard to advice, guidance and
knowledge in new technologies. Farmers also should be educated and trained in business
management to maintain their business efficiently and also on the availability o f financial
support from Banks. Most o f the farmers are not involved in making value added
products o f mushroom due to inadequate knowledge in such product preparations, lack o f
funds for initiation and lack o f knowledge in finding market for their products. The
policy interventions promoting public private partnership is a must. For example, the
government institutions that are involved in the above tasks must publicize their functions
and improve links with the farmers and other actors who play significant roles in the
network o f this industry such as exporters, retailers, wholesale people, researchers as well
as consumers to make this enterprise more profitable and sustainable. It is also important
to make the public aware (as consumers), on the nutritional and medicinal value o f the
mushrooms.
Conclusion:
This case study o f mushroom showed the importance o f actor-oriented approach and the
institutional arrangements that are useful to support a viable innovation system in a small
and medium scale enterprise. It has highlighted the gaps in the contemporary system such
as identifying actors and linkages in mushroom production and marketing. Once such
gaps are filled through policy intervention, the system as a whole will have a
considerable impact on the socio-economic development o f the country via the rural
village community. However, the said actors, their roles and linkages involved in the
system may have their own strengths and weaknesses and therefore, it is cautioned that
one needs to have patience, experience and in-depth understanding when evolving
suitable approaches in this direction.
16
Acknowledgement
The services provided by Mr. Roshan Seneviratne, and Ms. Nanthake Sirikumaran,
Research Assistants in data collection and data entry are thankfully acknowledged.
The Research Team o f the Science & Technology Policy Research Division ( S T P R D )
also thanks Mrs Deepika STO/ VIDATHA Center Biyagama and STO/VIDATA Center
in Bandaragama, for making arrangements for data collection and the National Science
Foundation ( N S F ) o f Sri Lanka for providing funds.
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