Sensible polices

Increasing domestic production to meet demand and reduce imports sounds attractive, but it can at times result in colossal losses in public funds. Sri Lanka has been attempting to increase its dairy production for decades, with the industry enjoying preferential tax and other perks, but the cost to the country and consumers is rarely discussed. 

During debates in Parliament this week, 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 are 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 liters of milk, ultimately produced only about 7-8 liters. 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 Government had to pay when it decided to pull out of the Airbus agreement inked by the same Rajapaksa government. 

The wastage of funds from this agreement is staggering. Not only do the taxpayers have to foot the initial bill for the dairy cows, they are also likely to pay for the tax relief that may be given to farmers. It is well known that high-yield dairy cows need specialised environments, food, veterinary care, and a whole host of other attributes to produce high levels of milk. Sri Lanka’s small-holder farmers largely have limited knowledge, vet care, and access to resources to convert their small operations into larger ventures that can produce on higher scales. Without providing the knowhow and resources, simply importing cows will clearly be a waste of public funds. 

Value chains are important for an industry to become competitive and deliver high quality products to consumers at reasonable cost. For example, while the Government has spent much money to increase production, there has been little investment in expanding processing plants, with even Milco having problems absorbing the production. Last year, farmers went on protest after Milco was unable to pay 375,000 farmers because it was making losses. Therefore, it is clearly time for a rethink at policy and implementation levels. 

Even after all this effort, Sri Lanka still only produces milk to meet 40% of demand, and therefore needs to import milk and other dairy products. If there are concerns about imports, then upgrading testing and other facilities is necessary, rather than villainising all imports, which could be used to increase competitiveness and provide consumers with products at accessible prices. It is also better to use public funds to focus on promoting exports, so that Sri Lanka can reduce worries about foreign reserves and provide basic goods to consumers at reasonable prices.