Larger private sector role for dairy?

Tuesday, 20 June 2017 00:00 - - {{hitsCtrl.values.hits}}

The dairy industry has hit headlines again with State-run Milco being accused by farmers of disposing of thousands of litres of milk daily as they do not have sufficient storage facilities. In 2012 a similar protest of dairy farmers culminated in the spilling of 12,000 litres of milk on the streets of Hatton. While protests by farmers who are unable to find a market for their produce is not unheard of, dairy farming in Sri Lanka has hitherto been unable to meet consumer demand through local production.

Increases in production may be attributed to the policy on increasing local dairy production, which enjoys a protected status in the local economy and over the past few years has expanded significantly around the country. The most plausible explanation as put forward by the larger private-sector buyers is the lack of capacity, particularly storage capacity, to meet the increase in supply brought about by the production drive. Despite efforts to increase production by importing dairy cows policy makers have not addressed the need to match the rest of the supply chain.

At the time Government remedies to the problems faced by the industry including a new levy of Rs. 92 per kg on imported powdered milk and a higher guaranteed minimum price may help to protect dairy farmers, but fast forward five years and the under underlying issue: that is, the vulnerabilities in the supply chain, with lack of distribution and processing capacity to handle increasing production has remained unresolved.

Industry commentators have also identified that a shift from powdered milk to liquid milk requires not only an increase in the availability of liquid milk, but also an attitudinal change amongst consumers who are accustomed to powdered milk. Therefore, the overall success of the policies relating to local liquid-milk production will be reliant on addressing both the supply-chain issues and the nature of consumer demand.

The previous Government employed a stop gap policy of providing a glass of milk to school children has provide to be unsustainable and fails to take into consideration these two key issues. The Government buying excess milk and redistributing it will take much funds and infrastructure capacity that is yet to be put in place. Without market forces at play, milk purchases will not be sustainable as proved in areas such as Kurunegala where private companies such as Nestle have boosted milk production exponentially.

Without the core issues being solved, it merely means that the same issues will continue. This is all the more tragic given the amount of hard work that has gone into developing the dairy industry after the end of the war. Before hostilities began, the east was known as the highest dairy producing region in the country, but the conflict decimated the industry for over two decades, forcing the farmers to start from scratch. Everything from breeding cows to treating their diseases and finding grazing ground for them had to be meticulously restarted. This was then gradually expanded to other parts of the country.

Such hard work cannot be allowed to go to waste, but policymakers need to encourage the private sector to rectify these supply chain shortfalls.