An Ice Plant Helps Thaw Jaffna’s Frozen Economy

Originally published on March 2, 2015.

Access to an effective cooling mechanism is imperative for transporting fish and keeping it fresh, particularly in tropical climates like Sri Lanka. Until the recent opening of an ice manufacturing plant in Jaffna, small fishermen and traders struggled to earn a viable and reliable income from what they caught.
   
“We used to experience a 10-20 percent loss of our catch during transport. If we could earn 400 rupees ($3) per kilo on a good day, we’d only get 200 rupees per kilo if the catch was damaged or wasn’t sufficiently cooled,” explained Mariahonesteen Nirojan, a large fish seller in Jaffna who sells in bulk on behalf of 40 local fishermen to about 20 regular customers. He added, “Now that we have ice, we can ensure that everything sells for the same amount, and set a higher overall price for what we catch.”

Helping to build an ice factory that could transform economic opportunity through the seafood value chain was one of the first catalytic investment grants made in 2012 by the United States Agency for International Development (USAID)-funded VEGA/BIZ+ program. Led by Volunteers for Economic Growth Alliance and implemented by Land O’Lakes International Development, VEGA/BIZ+ is fueling the growth of enterprises with the potential for significant economic growth and job creation in economically lagging areas of Sri Lanka like Jaffna.  

The BIZ+ program means people are not just getting a handout, but a real salary. If you give us free eyeglasses and reading materials, they will vanish someday. But if you create employment, we can buy those things for our kids ourselves.

Thinuravukkasu Senthan (Owner, Jeyantha Industrial Park (Pvt) Ltd.)

Known as Jeyantha Industrial Park (Pvt) Ltd, the new 20 ton-per-day ice factory is harnessing the untapped economic potential of aquaculture in an area that was devastated by war. Jaffna was a stronghold for the Liberation Tigers of Tamil Eelam, which was locked in a 26-year civil war with the government until 2009. Economic embargoes, internal displacement and the physical battle scars of war made Jaffna the antithesis of an ideal place to invest in the minds of most Sri Lankans.

Although Jeyantha’s owner Thinuravukkasu Senthan had a lifelong dream of starting a factory in his hometown, finding a viable business model was far easier said than done.  “I was struck by how little entrepreneurship there was here as a result of the war,” he recalled. Despite the fact that Jaffna and the rest of Sri Lanka’s northern peninsula is surrounded by water, the government did not permit fishing during the war. Seeing the changing tides brought about by peace, Mr. Senthan immediately seized upon the market opportunity to support the fishing industry with ice.

“In Jaffna, the only resource we really have is seafood. There are no garment or plastics industries, and our crops aren’t of a high enough quality to compete. Our competitive advantage and raw materials are tied to the sea, with excellent crabs, prawns, lobsters and other seafood in the harbor. But our fishermen didn’t have the infrastructure they needed to maintain a quality cold chain for their shellfish,” Mr. Senthan explained.  Prior to VEGA/BIZ+, he had already secured commercial bank loans to manufacture six tons of ice per day, but he struggled to meet local demand.

Mariahonesteen Nirojander, a major fish seller in Jaffna, says incomes have increased 75 percent due to the ice factory’s presence.
Within three months of submitting his business plan for business growth, Mr. Senthan learned he was successful, and began rushing to secure the cost share required by the VEGA/BIZ+ program to facilitate his business’ growth. Jeyantha Industrial Park contributed about $200,000 for the land and factory construction, while the VEGA/BIZ+ grant of $266,000 covered the purchase, transportation and installation of the new 20-ton per day ice factory’s machinery. Mr. Senthan purchased the land from his uncle, and built his dream ice factory atop the detritus of his uncle’s former prawn export company, which was destroyed by mortars during the war.

Ice not only enables fish to remain fresher at the market, but it allows fishermen to work for longer durations without having to return to shore. According to a small-scale fisherman and day boat operator named Santhan (no relation to the owner of Jeyantha), "The availability of ice in Jaffna has helped us to make three catches in a night compared with one. Previously, we would only go out to sea at about 4 am and return by 6 am, so that we could get the fish to the market before it spoiled. Now, we leave at about 5pm the previous evening and fish all night." He is now earning over US $100 a day.

Before Jeyantha expanded his ice production, middlemen traders were the only ones who provided fishermen with their ice, and they also controlled the prices of what had been caught. This system is changing now that fishermen can access their own ice. Day boat operator Santhan explained, “We would be price takers of traders coming from Colombo who brought ice with them, as they had the bargaining power. Now we can sort and grade the fish, pack them in ice and send them through wholesale traders to the Peliyagoda fish market.”

Although migrating out of Jaffna has traditionally been the dream of most locals, the presence of the ice factory has actually lured some people back home. Jesu, a medium-scale fish trader who had been working until recently as a chef in Norway, returned to Jaffna to restart his ancestral fish trade business, because it was actually more lucrative. Access to ice has been transformative in reducing post-harvest loss, he says. “Without ice, the difference between morning and afternoon fish sales is about 50 percent. At least 60 percent of our catch would remain, to be sold at the lower price in the afternoon.”

Thinuravukkasu Senthan, owner of Jeyantha Industrial Park, in an ice storage room.
New business has also emerged in the form of ice merchants like Anandarasa, who purchases 20-30 blocks (about 1.5 MT) of ice from Jeyantha daily, and delivers it to about 40 microbusinesses who are located too far away to pick up the ice themselves directly. Anandarasa has no facility to stock ice, and so he often makes several trips to the ice factory each day to purchase on demand. After directly selling some of the ice in bulk directly to fish exporters, he also sells ice onwards to about 20 small-scale fishers in Velvettithurai who earn about US $30 a day, and 20 fish vendors who operate a mobile fish trade in nearby villages, who earn $11 per day.

Not only is Jeyantha Industrial Park already operating at full capacity thanks to USAID’s support through VEGA/BIZ+, selling crushed and blocked ice to some 60 regular customers a day, but about 15-20 new multiday boats have started fishing in the harbor since the new ice factory began operation.

While ensuring a regular stream of customers has been relatively easy for Jeyantha, and Mr. Senthan has secured enough market share to produce a maximum production year-round, he has also encountered many unexpected challenges.  For example, selling at the desired price point has proven challenging. Competition from established ice manufacturers near the capital of Colombo, and other newly opened ice factories in Jaffna, required Mr. Senthan to lower his price from about $1.75 per block of ice to only $1.36 in order to remain competitive. These factors also did not allow him to open up satellite distribution centers as planned as they would not have been competitive, which in turn did not allow him to hire as many people as planned. The 23 new staff members, most of whom were previously unemployed youth, are now earning a locally competitive salary equivalent to $152-$167 a month, plus a bonus incentive. Now that his business is solid and steady, Senthan plans to expand his business into related areas such as fish trading and processing in the coming year.

“Salaries and electricity are fixed costs, so right now it feels like a net loss, because I’m having cash flow issues. But, within two to three years, I’ll be financially stable and making a big profit, and I know I can survive because the quality of my ice is so high,” Mr. Senthan said of his financial outlook.  He added, “Because of the USAID grant, we grew enough and had sufficient guidance to survive on our own and grow continuously. This is a starting point. Our profit is large enough now that banks trust us and are willing to loan us almost as much as the USAID grant.”

One of Jeyantha Industrial Park’s new hires loads ice blocks into an ice crushing machine.
Even with ice factories in Jaffna that have a combined 26 ton per day capacity, Mr. Senthan is still dreaming about further business expansion. The fishing industry is growing exponentially, and his customers expect him to supply ice and meet their increased demand when the need arises, without fluctuation. The main harbors in the towns of Ampara and Trincomalee are each filled with more than 100 multiday boats. Jaffna itself has no fishing harbor, at present.

“The government has allocated some money to build a harbor here next year, and that will incentivize more sales. I will look to expand my operations when the harbor is in place, as it would enable me both to increase production and the price of each block of ice that I sell,” he forecasted.

Mr. Senthan is extraordinarily proud that he’s not only helping to change mindsets about rebuilding industry in Jaffna, but is providing proof about what kind of assistance conflict-affected communities such as his really need the most.

“NGOs used to come here and do charity work, establishing orphanages, roads and sanitation, but not doing anything to strengthen business and industry,” Mr. Senthan recalled. “The BIZ+ program means people are not just getting a handout, but a real salary. We don’t want charity anymore. If you give us free eyeglasses and reading materials, they will vanish someday. But if you create employment, we can buy those things for our kids ourselves. An entrepreneur will not allow his company to fail. We have to grow.”

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