Confectionery exporters look to relocate overseas

• Exploring locations favourable and competitive for production
• Claim export orders in jeopardy as local manufacturing becomes expensive
• Looking at opportunities to outsource manufacturing or set up plants in Malaysia, Thailand, Indonesia, Vietnam, Bangladesh
• $ 200 m industry warns shift will result over 550,000 people losing jobs and livelihood
• Say doing business not conducive to investors; if no proactive measures taken to protect remaining exports, economy will suffer 
• Companies likely to stop most production lines due to supply constraints of raw materials

By Charumini de Silva

With the high cost of manufacturing, supply constraints and no policy direction from Budget 2022, the $ 150-200 million-worth confectionery exporters are looking to move their production to more favourable overseas locations.

Despite having orders, confectionery exporters are finding it extremely difficult to match prices quoted by buyers and be competitive in the international market.

“We agree on orders for two years. Although we have several contracts we cannot be competitive, as raw material prices have gone up by 10-20% just within the past six months. We cannot even renegotiate our prices because there are many players who can supply cheaper. Our export orders are in jeopardy,” Lanka Confectionery Manufacturers Association (LCMA) President S.D. Suriyakumar told the Daily FT.

He noted that the companies would have at least survived with the price increases had there been no shortage of raw material supply and proper policy to encourage exporters more effectively.

“Inputs that have come to the port are delayed with banks not releasing  foreign exchange. The process to release goods takes 15-20 days from the port and we have to pay demurrage on top of the delay by banks. The businesses have to bear all the additional cost. We have been supportive to the Government given the pandemic, but it seems  the authorities have taken us for granted,” Suriyakumar opined.

He said Budget 2022 was the last hope the industry had but the sector and its contribution to the national economy were ignored, hence disappointing.

At present, companies are exploring opportunities to either get into manufacturing agreements with overseas companies (outsource manufacturing) or set up factories in Southeast Asian countries where policies are more conducive to do business compared to Sri Lanka, he said.

“Prices have gone up in those markets as well, but compared to Sri Lanka they are much less and there is policy consistency and a considerable amount of raw material to manufacture without major price and supply constraints compared to Sri Lanka,” he pointed out.

Confectionery exporters are exploring opportunities in Malaysia, Thailand, Indonesia, Vietnam and Bangladesh.

Suriyakumar also said the exporters in general had been struggling for the past one-and-a-half years to find containers to ship their goods to relevant markets on time. 

“We had many discussions with higher authorities of the Government, but to date no tangible solution has been implemented to support exporters – the only significant foreign exchange earners of the economy,” he claimed.

The LCMA President asserted that member companies had invested over Rs. 10 billion to bring in the technology and machinery to produce world-class confectionery products locally, apart from incurring cost on promotion activities to bring the ‘Made in Sri Lanka’ brands to the shelves of the leading supermarkets in European and African countries. 

“At the early stage of our export industry, our products were only sold in areas where ethnic groups were residing, but now our products are in leading supermarkets such as Tesco, Lulu and Walmart, to name a few. We export to over 50 countries at present,” he said.

Suriyakumar cautioned that if export companies were to move out of Sri Lanka to other regional countries, it would immediately put 550,000 people out of employment. “There are over 50,000 direct employees and 500,000 people engaged in the confectionery industry. If the larger companies stop plants in Sri Lanka, it will directly impact their livelihood and the economy too will suffer with no foreign exchange inflow,” he warned.

He claimed that the business situation in Sri Lanka was clearly not very conducive for any investor, adding that the economy would further suffer if no proactive measures were taken to protect the few remaining export industries.

“Several confectionery manufactures will stop certain production lines sooner or later considering the high cost and shortage of raw material. This will also reflect in short stocks in the market, closure of factories, slash in employment and allowances and ultimately increase poverty among the society,” he cautioned.