Milk food traders have threatened to halt imports and close down packaging factories if the Government does not allow a price increase.
Hit by the declining rupee value, importers say the decision by the Consumer Affairs Authority (CAA) not to allow a Rs 15 price increase for a 400 gram pack, was adding to their losses.
A senior CAA official said a letter was sent to milk powder importers on Monday informing them to maintain the price level which prevailed on May 2 last year. The price of a 400 gram packet of milk powder in the local market is Rs. 260 at present.
Sri Lanka’s annual consumption of milk powder is about 58,000 metric tonnes, of which 50,000 metric tonnes were imported, industry officials said, pointing out the heavy dependence on imported milk powder.
Along with the devaluation of the rupee, the import price of milk powder has increased. “We have been asking the CAA to increase the price along with the devaluation of the rupee. We don’t receive any profit and the loss we are incurring is increasing,” said Maliban Milk Powder Company Chief Executive Officer D.L.Weerasuriya. He said the companies were selling milk food at a reasonable price.
He noted that the government had restricted the margin of profit for a 400 gram packet of milk powder to 4%. Mr. Weerasuriya said the devaluation of the rupee has resulted in milk powder importers incurring a loss of Rs. 37 on the sale of a kilogram of milk powder in the market, even earlier. Now that loss has increased to Rs.58.
“Our profit margin decreased to 1% when the dollar rose to Rs. 115 and it has now risen to Rs. 122 and continues to rise. The import cost of a kilogram of milk powder is now in the region of Rs. 520. The total cost with taxes, packaging, transport charges and rebates is around Rs.650,” he said. Earlier the companies had been making a profit of Rs.10 to Rs.12 a kilo. But it had come down to a low level,” he said.
A top official of Anchor milk Company, Fonterra said the devaluation of the rupee by 3 % in the 2012 Budget, had a negative impact on milk powder importers, and the situation took a turn for the worse with the rupee depreciating to about Rs.123 against the dollar. “We have to pay at the latest exchange rates when clearing shipments. It is a cost factor. Our distributors and agents are demanding a price increase because of the rise in fuel prices as well. Since the price is controlled by the Ministry of Internal Trade and we cannot change the prices whenever we want we depend on the Ministry to take proper steps in this regard,” he said.
Delmege Forsyth Managing Director Asoka Bandara said it was difficult for the company to place orders to import adequate stocks of Milgro milk powder due to the rupee depreciation. “The price of a metric ton of milk powder, which Sri Lanka imports mostly from Australia and New Zealand, has now ballooned to a US$3,800- US$4,000 range.
"How can we be expected to sell milk food products at the existing rate structure when the price per ton had shot up due to devaluation of the rupee? he asked. "Our only option is to reduce imports. This will result in a shortage of milk food in the country,” he warned.
Dollar rate soars
The US dollar shot up to Rs 130 this week from Rs 125 in the previous week owing to pressure on imports for the National New Year and motor vehicle imports.
“There was huge pressure -particularly on Monday- owing to some import bills for the National New Year. But there were also LCs opened for motor vehicle imports on orders placed earlier,” one banker said, referring to a Central Bank request to reduce motor vehicle imports.
CB Governor Ajit Nivard Cabraal said this was a “temporary ‘overshoot” and connected to seasonal demand. “It’s nothing to get worried about as the Rupee will stabilize,” he added.
This assertion was earlier echoed by Treasury Secretary P.B. Jayasundera who told reporters on Thursday the Rupee should stabilize below Rs. 125 following the initial adjustment to the currency float and seasonal demand.
Both Dr. Jayasundera and Mr. Cabraal referred to the yawning trade deficit of $10 billion- imports-$20 billion and exports $10 billion. They said the recent CB directions to banks to limit credit on unnecessary imports coupled with high lending rates with the same purpose were aimed at reducing the trade deficit.
Mr Cabraal, responding to criticism that foreign reserves had fallen sharply, said he was confident that $500 million would come through the stock market this year with $200 million already in. With other foreign revenue and loans, the foreign reserve position this year would be at a satisfactory level.
While public perception is that Dr Jayasundera and Mr. Cabraal differ on economic policy issues particularly CB foreign exchange management, the Treasury Secretary had told the Parliamentary Consultative Committee on Finance on Friday that the CB policy measures enforced on February 3 were the right decisions and the best way to halt any further fall in foreign reserves.
He made the same acknowledgement at Thursday’s briefing, saying the positive impact of these CB policy measures would be felt only at the end of the festive season next month. Mr. Cabraal was not present at the parliamentary meeting, chaired by Senior Minister Sarath Amunugama in the absence of President Mahinda Rajapaksa who is also the Finance Minister, Committee sources said.
The ‘wild’ dollar fluctuations have caused some panic amongst the public fearing that cost of living would escalate. However this is not the first time in recent years that the dollar has gained sharply. It rose to Rs 120 a dollar, according to an April 26, 2009 report in the Sunday Times, just before the IMF approved a bailout package of $2.6 billion.
Related Link: US dollar reaches record Rs 120.