The mill in Nadunkerni, Vavuniya, can process 4,000 metric tonnes of paddy (unhusked rice) a year, creating 20 jobs.
The ILO said it is giving 10.7 million rupees to install new milling equipment at the facility operated by the Multi-Purpose Cooperative Society (MPCS) of Vavuniya North.
"This agreement is viewed by the ILO as a first step in a long term integrated support package to the cooperative movement in the Northern Province," ILO's Colombo office said in a statement.
"Technical support for the selection, procurement and installation of equipment is being provided by the Institute of Post-Harvest Technology Research and Development in Anuradhapura."
ILO and the Sri Lanka government's ministry of labour is implementing an economic development project in the area funded by the government of Australia.
"The cooperative sector is viewed by the ILO as a key stakeholder and partner in the Government™s reconstruction efforts in the Northern Province," the agency said.
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