Productivity Growth in Food Manufacturing Industry: Empirical Evidence from Post-reform Sri Lanka

Abstract

The objective of this article is to measure productivity growth in Sri Lanka’s food manufacturing industry during the 1978–2014 period and briefly review the policy measures adopted over time aiming to improve productivity in the industry. Total Factor Productivity (TFP) growth trends were measured adopting the Cobb–Douglas production function framework using the data extracted from the Annual Surveys of Industries conducted by the Department of Census and Statistics, Sri Lanka. TFP growth was computed for the entire industry as well as for its sub-divisions with emphasis on the scale of operation, type of industry, and policy regimes. Even though the average TFP growth in Sri Lanka’s food manufacturing industries was found to be negative (−0.61%) for the entire period (1978–2014), it is noteworthy that average TFP growth improved over time from −2 per cent during the 1978–1994 sub-period to 0.7 per cent over the 1994–2014 sub-period. Furthermore, large-scale food manufacturing industries achieved higher TFP growth compared to that of their small-scale counterparts. Distilling, rectifying spirits, manufacture of grain mill products and prepared animal feeds industries showed positive and higher TFP growth while cocoa, chocolate and confectionery industries demonstrated a lower TFP growth. Food safety management systems and investments in infrastructure through Public-Private Partnerships were some policy measures that led the productivity growth in Sri Lanka’s food manufacturing industries.