ECONOMYNEXT – Sri Lanka’s government should reduce taxes and scrap price controls on imported milk powder to ensure better availability and cheaper nutrition for consumers, Advocata, an independent policy think tank based in Colombo has said.
The fast depreciating rupee and price controls may lead to a shortage of milk powder, taxed at 45 percent, as several leading importers are reported to have taken a collective decision to suspend imports, the institute warned in a statement.
“The recent depreciation of the rupee has caused a significant increase in import costs and importers say they are now unable to sell at the controlled price, hence the decision to suspend imports,” it said.
“The same impact will be felt in other industries subject to price controls. The pharmaceutical industry withdrew eleven drugs from the market citing similar reasons.”
Despite the high import tax protection, aimed at protecting local farmers and achieving self-sufficiency in milk products, local production meets only 40 percent of total domestic milk demand, much below 80 percent levels in the 1970s.
Advocata advocates cutting high import taxes to ensure cheaper milk for consumers and cheaper raw materials for downstream processors like the biscuit or confectionary industry.
“The removal of the Maximum Retail Price would allow for a higher level of healthy competition among both importers and local dairy manufacturers, allowing market forces to decide prices.”
The government should recognize that given the several supply constraints, the objective of self sufficiency is not realistically attainable in the Sri Lankan context, Advocata also said.
Much of the demand in milk products is met through imports, mostly from New Zealand and Australia.
“Over the last decade, in 7 out of 10 years, imports of milk powder has grown at a higher pace than the growth in local production,” Advocata said.
A recent report by the Advocata Institute, Price Controls in Sri Lanka, emphasizes the contradictory trajectory of policies in the dairy industry.
“This tangle of taxes and controls comes at a cost to consumers. Our costs are increasingly becoming apparent by visible shortages of milk powder in the market.”