Business Times

Sri Lanka to face milk powder shortage

By Bandula Sirimanna

Sri Lanka is on the verge of facing a severe shortage milk powder as local importers have been struggling for their survival following the jump in the price of milk powder to the highest level since mid-2008, reflecting global demand and shortages for food commodities.

There could be a milk powder shortage in the country if the government does not allow a price increase in the New Year in April, milk powder importers warned. They noted that local milk powder companies will have to stop importing milk powder as they have suffered heavy financial losses in the past few months.

Sri Lanka's top producers have sought permission for an immediate price increase of about Rs.33 per kg, with further price increases on the cards. "Severe floods in Australia, coupled with the removal of subsidies for milk in Europe has made prices in the world market go up for milk," one milk powder importers said. Importers have already asked for a price increase from the Consumer Affairs Authority and they have made representations to Finance Ministry requesting a reduction in import duty.

A senior Finance Ministry official said that they cannot bring down the duty as the Treasury has to find money for flood relief and reconstruction activities in areas devastated by torrential rain. The Government presently estimates the total cost of the floods including damage to tanks, culverts at Rs. 50 billion (approximately 1.2% of GDP). However, the social cost of the damage is likely to be far greater, he said. Under this set up no duty revision is possible he added.

Consumer Affairs Authority Director General Chandrika Thilakaratne told the Business Times that there was no recent application made by milk powder companies to increase the price of milk powder. However the Authority will not approve a price revision at this moment, she said.

Roshan Kulasuriya, Human Resource Director Fonterra told the Sunday Times that global milk powder prices are on increasing trend. "We have requested an increase in prices from the Consumer Affairs Authority through price increase applications since August 2010. However every month the application has got rejected and the following month a fresh application is submitted. This cycle has been ongoing to date. We have requested for an increase of around Rs.33. Meanwhile the duty on 1kg of imported milk was reduced from Rs. 50 to Rs. 28 in January 2011. However the relief to the company is only Rs. 18 per kg. Considering the price hike requested and the duty concession granted the company is still at a shortfall of Rs 25. Thus the company continues to make an appeal for an increase in price on milk powder," he said. According to him the companies had informed the Minister of Internal Trade that the removal of the import duty was a small relief compared to the price increase they had asked for.

Nalinda Jayamanna, head of marketing and sales of Maliban Milk Products Company Limited said that his company is incurring a heavy loss of Rs. 30 million per month owing to rising milk powder price in the world market. The world market price has shot up to US$4,700 per metric ton at present and this will be further increased in the coming months. The company imports 1,500 metric tons of milk powder monthly and is losing Rs.20 per kg by selling at a price of Rs.590 a kg, he said. A local company like Maliban cannot survive under these circumstances and they have made representations to the Finance Ministry, and the Ministry of Co-operative and Internal Trade to further bring down the import duty currently amounting to Rs. 22 per kg or allow them to increase the price of milk powder as they have no alternative. He noted that Maliban finds it difficult to import adequate stocks of milk powder in April and he anticipates a shortage during the Sinhala and Hindu New year period.

"All the milk powder companies have been appealing to increase their prices since October and the local companies like Maliban have appealed to the Government since they were making losses," a senior official of the Ministry of Co-operative and Internal Trade confirmed. However he added that discussions are underway between the ministry and those milk powder companies with regard to their request. He noted that a price revision is not possible. Minister Johnston Fernando previously said that they had managed to, so far, keep the milk powder prices from increasing despite the escalating prices of essential commodities like coconut. Milk importing companies have requested, for the 14th time, to increase prices of milk powder and a decision regarding prices of milk powder would be taken by President Mahinda Rajapakse who is also the Minister of Finance, he added.

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