• Nearly 14,000 small- and medium-scale farms cease operations
• 37% of dairy production cost is expenditure on maize
• Govt. taking steps to revive dairy industry; Amul to support: Amaraweera

Sri Lanka’s dairy industry is on the brink of collapse, with nearly 14,000 small and medium-scale farms having ceased operations last year due to exceedingly high production costs, The Sunday Morning learns. 

According to dairy farmers, the number of farms that are expected to shut down may increase further unless the Government takes the necessary measures to reduce production costs and support the local dairy sector.

Farmers claim that only large-scale farms can sustain operations during the prevailing economic crisis without Government support.

T. Susantha, a dairy farmer from Polonnaruwa, expressed concern: “We are operating at a massive loss. We incur losses consistently and operations are sustained through loans. Many farms are closing down, either by selling their cows or retaining them for household needs. This industry cannot survive without Government support. We do not see the Government taking steps to rescue farmers; instead, it continues to impose continuous taxes.”

Susantha, a 53-year-old farmer with nearly 20 years of experience in the industry, lamented the impact on his business over the past five years: “Five years ago, this business was profitable, but then came the challenges of Covid-19 and the economic crisis. We are still struggling to revive the business to its pre-Covid state. I had 20 people working under me, but now this has reduced to five and I am struggling to continue their employment.”

Increase in production costs

As per the Department of Animal Production and Health Livestock Statistical Bulletin of 2017, the production cost of milk in Sri Lanka experienced a notable increase from Rs. 29.58 per kilo in 2013 to Rs. 34.69 per kilo in 2017, marking a 17.3% rise. This cost surged further to Rs. 47.67 per kilo in 2018, representing a substantial 37.42% increase compared to 2017 and a significant 61.16% increase compared to 2013.

In the context of international market trends, the price of one kilo of whole milk powder saw an escalation from $ 2.51 in 2016 to $ 3.32 in 2017, reflecting a substantial 32.27% increase. The price of one kilo of skim milk powder witnessed a more modest increase from $ 1.96 to $ 2 during the same period, constituting a 2.04% hike.

In such a backdrop, nearly 37% of the production cost is attributed to maize, a crucial ingredient for achieving high milk production in cows, The Sunday Morning learns. The tax on maize experienced an increase to Rs. 75 from Rs. 7 a few years ago, and although it was subsequently reduced to Rs. 25 a few months ago, the tax is still tenfold higher than its previous rate. 

Simultaneously, the overall cost of production has risen, contributing to a significant hike in prices. Despite the reduction in taxes on imported milk powder to Rs. 2 from Rs. 45, Sri Lanka’s annual dairy demand, growing at a rate of 10%, continues to be met largely by imported milk.

At large-scale farms, a litre of milk is sold at Rs. 220-260, while small-scale dairy farmers offer a litre of milk at Rs. 90-120. However, when factoring in other costs, the overall expense of a 1 litre dairy milk pack has surged, rendering it increasingly unaffordable for an average middle-class family on a daily basis.

In addition, the dairy sector relies heavily on machinery, particularly large-scale farms, and the imposition of new taxes on this equipment is a significant concern. The machinery utilised include items made of rubber and taxes are levied on these components as well. An official emphasised that the cost of some machines had surged from Rs. 100,000 to around Rs. 370,000.

Sri Lanka currently satisfies approximately 40% of its domestic milk demand through local production, necessitating substantial imports to meet the remaining needs. The dairy sector in the country is primarily driven by smallholder farmers, presenting a significant agro-industrial opportunity.

Dairy milk industry

The dominance of cow milk production remains a critical factor in Sri Lanka’s dairy industry.

Government statistics for 2022 indicate a cow milk production of 506 million litres. Despite occasional declines, the overall trend shows positive growth, particularly noticeable in the last decade, especially after 2008.

The Ridiyagama Farm, operated by the National Livestock Development Board (NLDB), has emerged as Sri Lanka’s largest dairy farm since 2016, boasting an annual production capacity of 10 million litres of milk following the importation of 2,500 cows.

The majority of dairy farmers in Sri Lanka are smallholders who lack significant capital or land for cultivating high-quality fodder. They rely on communal lands or naturally-occurring grasslands to feed their animals. 

Most of these farmers rear indigenous animals with low production potential, employing an extensive or semi-intensive system that relies heavily on family labour. The animals are fed through grazing or cut-and-carry methods, utilising naturally-available forages in communal lands or natural grasslands. The quality and quantity of such forage vary seasonally.

These farmers typically possess traditional knowledge and predominantly employ traditional practices for farming, which may or may not align with scientific accuracy. Addressing these challenges and focusing on small and medium-scale producers in dairy development programmes is of paramount importance for effectiveness.

Nearly 14,000 farms shut down

In such a backdrop, All Ceylon Farmers’ Federation (ACFF) President Namal Karunaratne said that the current high costs had forced nearly 14,000 farms to shut down their operations last year. 

Speaking to The Sunday Morning, Karunaratne said that the high cost of electricity and fuel and the high foreign exchange rates had led to an increase in costs related to animal feed, vitamins and minerals, and other essentials needed to maintain a dairy farm.

“Farmers are struggling due to high operational costs. The numbers might increase further and the entire dairy industry is facing a severe risk. The Government is taking advantage of the situation and trying to sell the dairy sector to India,” he charged.

When contacted, Agriculture Minister Mahinda Amaraweera said the Government was taking the necessary steps to revive the country’s dairy sector and arrangements were in place to obtain technical know-how from India’s Amul to enhance the local dairy industry. 

When asked about the farms that were closing down, the Minister said that a new programme had been launched to register all small-, medium-, and large-scale farms.