Confectionery manufacturing industry in jeopardy over Govt.’s move

Continued success of the confectionery manufacturing industry is in jeopardy following the recent increase in import levies.

Industry sources said that recently the Government via Gazette notification increased the import levies of Confectionery Fats from 60% to 160% bringing it under Special Commodity levy structure. Previously a duty of Rs. 60 per kilo plus 5% Port and Airport Levy (PAL) was charged.  The new arrangements amount to Rs. 175 per kilo sans PAL. The landed cost has risen by Rs. 100 to Rs. 287 per kilo.

“This increase will significantly impact the cost of manufacturing of confectionary products namely chocolates, biscuits, cakes, ice creams etc.,” local manufacturers who are members of the Lanka Confectionary Manufacturers Association (LCMA) said.

“This is in the backdrop that already the import levies of some key raw materials used in the manufacture of confectionery are highest in the region e.g. whey powder 140% of CIF, sugar 55% of CIF among others,” they added.

It was pointed out that Sri Lanka does not produce Confectionery Fats. In chocolate manufacturing the industry needs to add cocoa butter substitute which is a highly specialised fat, as the natural cocoa fat (cocoa butter) will not withstand tropical temperatures, subject to melting. These Fats are processed for specific melting and texture properties to ensure long shelf life. 

“Due to this significant increase it is not viable to manufacture fast moving smaller pack sizes which accounts for nearly 40% of the business. This will compel us to increase the prices and then the cheap and inferior imports will flood the market, draining the hard earned foreign exchange and risking the lives of our future generation,” sources warned.  

LCMA pointed to the recent policy statement by Prime Minister Ranil Wickremasinghe who mentioned that Government will create one million job opportunities - ensuring increases in income, support local entrepreneurs to enter the global markets.

“However increasing import levies of critical ingredients which are not manufactured in Sri Lanka will only prevent or delay in achieving the vision of being a prosperous nation,” sources opined.

According to LCMA the confectionary industry provides direct employment to over 50,000 and around 500,000 are indirectly dependent.

They emphasised that the confectionery manufacturing industry contributes significantly to the national economy in terms of GNP contribution and foreign exchange earnings as well.

The industry’s products are on par with the best in the world and Sri Lankan companies also export to over 55 countries. This is despite many larger countries enjoying greater economies of scale benefits. 

Given the crisis situation, the industry body LCMA has been requesting to reduce the import levies of Confectionery Fats and other ingredients from Budget 2016 as local products are under threat from imports. 

LCMA also warned of possibility of deterioration of quality standards of confectionary items available in Sri Lanka because of low industry profitability. Another is price escalation by major players for survival causing substantial low cost imported confectionary products flooding the local market, which is an existing problem too.

The Government’s new move will also impact the viability of exporting confectionary products manufactured in Sri Lanka.

Due to low industry profitability, Sri Lanka will have a negative advantage to capitalise in growth of global confectionary supply chain, LCMA said adding that the Government move will also impact plans to keep inflation low.