Sri Lanka’s Governments are notorious for being blind to the negative results of their own decisions and despite experience to the contrary keep making policies ignoring facts. For decades, the dairy industry has been one of the most protected sectors in Sri Lanka, but even after absorbing huge amounts of public funds, it remains one of the least efficient and most contentious segments of the economy.
Undeterred by their earlier wasteful decisions, Cabinet this week approved importing 2,500 dairy cows, completely ignoring previous disastrous experiences. Caught in the crosshairs of politics, bad decision-making, mismanagement, and outdated economic thinking, the dairy industry is a microcosm of how interventionist economic practices can harm both consumer and producer.
On the surface, successive Governments have justified billions of rupees worth of subsidies to the sector, on the basis that Sri Lanka spends over Rs. 40 billion annually to import milk powder, and have argued that import substitution would save the country precious foreign exchange while meeting nutrition needs. But this has had limited success, as the local industry has failed to be competitive. This is also why milk products such as cheese are expensive in the local market, despite the existence of large-scale local producers.
During Parliament debates in March 2019, former Agriculture and Livestock Development Minister P. Harrison outlined the colossal waste of public funds that had been allowed under the guise of import substitution. Former Economic Development Minister Basil Rajapaksa signed an agreement to import 20,000 milch cows with Wellard Rural Export Ltd., which is an Australian company that also sources cattle from New Zealand. The $2.3 billion agreement was for each cow to be purchased at a colossal cost of $3000 dollars each, and to be given to farmers at just Rs. 200,000. An estimated 5000 cows were imported in 2017.
According to Minister Harrison, over 400 of the imported cows had died, and many of the farmers were mired in debt after they borrowed beyond their capacity to purchase cows and set up small dairies. The cows, which were imported because they were supposed to yield about 20 litres of milk, ultimately produced only about 7-8 litres. The Minister had told Parliament that the Government could not pull out of the agreement, because it would have to pay a penalty of a staggering $800 million and could simply not afford to do that. To put this staggering mess in context, the penalty is worse than what the former Government had to pay when it decided to pull out of the Airbus agreement inked by the same Rajapaksa Government.
Farmer associations and experts have since pointed out that these cows do not suit the Sri Lankan climate, and farmers are forced to spend significant amounts of money on their upkeep. Large numbers have perished over the years, and those left produce smaller volumes of milk than initially projected. After many trials and failures, milk production has improved, but little investment was made in establishing efficient delivery systems to consumers. There has also been no accountability for the billions of rupees spent in this disastrous effort.
Supporting local industries is important but this does not justify bad policies, worse implementation amidst zero transparency. At a time when public finance is in such a precarious state the Government has no right to keep pursuing policies that have failed spectacularly without facing facts.