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Sri Lanka farmgate fresh milk prices soar as demand outpaces supply

ECONOMYNEXT – Sri Lanka’s farmgate fresh milk prices have soared around 20 percent in some areas amid tighter supplies and competition from milk processors, as global whole milk prices also picked up industry officials said.

Sri Lanka raised a state mandated floor price for liquid milk to 70 rupees a litre from 50 rupees in 2015 which has been unchanged in 2018.

But contract milk collectors are now paying farmers around 80 to 85 rupees and some dairy processors are paying over 90 rupees for a liter delivered to their factories, based on volumes, according to industry officials.

In the intervening period however the rupee has collapsed from 131 to the 182 to the US dollar amid liquidity injections, keeping the dollar prices broadly the same.

Sri Lanka has seen an outbreak of foot and mouth disease and erratic weather, which officials say has hit output. The current paddy harvest season is also reducing production, a seasonal effect.

“When the paddy season starts farmers in the dry zone usually give more focus on crops while letting the cattle roam freely in the wild,” says Binesh Pananwala, Chief executive of Sri Lanka’s Watawala group which operates a commercial scale dairy farm.

“This leads to low yields from the cows. This is also a seasonal thing and normally the price of a litre of milk comes down in the Sinhala and Tamil New Year period due to increase in volumes.”

“Weather flukes and the outbreak of foot and mouth disease have also contributed to this milk shortage in the market which has been going on for about two months now.”

Fonterra Brands, which collects domestic milk for its yoghurts and liquid milk products sold in Sri Lanka, say it is also paying higher prices for milk, helping farmers and it does not have enough milk to fill demand.

“Although we wish to source more fresh milk to meet the emerging requirements of consumers, it is not readily available,” Kamal Geeganage, Director – Integrated Supply Chain, Fonterra Brands Sri Lanka said.

“The supply of fresh milk has drastically reduced. As such, we are paying about 15 percent higher for every litre of milk sourced, compared to previous years, which benefits our existing dairy farmer suppliers.

Fonterra says it paid over a billion rupees to Sri Lankan farmers for milk in 2019. Higher prices however may push up costs for consumers.

Sri Lankan farmers generally have lower yield, mostly due to inadequate knowledge in caring for animals, poor feed and restrictions on feed imports.

“This additional cost of milk sourcing means the retail price is impacted, which means consumers have to pay more for local dairy,” Geeganage said.

“We continue to work with our local dairy farmer suppliers to encourage higher quality standards and productivity in our efforts to grow the local dairy industry.”

Sri Lanka’s state-run Milco, and Nestle, a Swiss food group also has collection networks spread around the country.

Global whole milk power prices are also up.

After falling to 2,900 US dollars a tonne in July, power prices have rise to over 3,200 dollars a tonne by January, easing from a December spike.

Analysts say looser US monetary policy has weakened the dollar, driving the prices of many commodity and metals prices up.

Sri Lanka’s vegetable, coconut and rice prices have also shot up, as the economy recovers from a currency collapse in 2018 and a credit contraction in 2019.

Sri Lanka’s total milk production rose sharply to 467 million litres in 2019 from 397 million in 2018, according to official data.

But provisional data from Sri Lanka’s statistics office say production may have fallen to 447 million litres in 2019. Sri Lanka dairy herd is about 1.4 million of which around 640,00 are estimated to be milch cows.

Sri Lanka’s estimated annual demand is the equivalent of 745 million litres. About 75.000 metric tonnes of milk solids are also imported. (Colombo/Jan27/2020)

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