SRI LANKA AND MILK PRICES
February 2002
Historically Sri Lanka has always been dependent on imports of milk powders. The consumption per head of milk products in Sri Lanka has more than doubled over the last 15 years, growing from an average of 10 litres to over 22 litres per year. Therefore the demand for milk powders outstrips the availability of local fresh milk and the country has to import about 65,000 tons per year of full cream milk powder to meet the increased consumption trend, in spite of efforts made by the government and milk companies to develop fresh milk production (from an average of 50 mio litres of fresh milk per year in 1980, the collection of local fresh milk nationwide has climbed to about 100 mio litres in 1997, with a slide down to 80 mio litres in the recent past due to the deleterious effects of war in some milk collection areas).
Nestlé has significantly contributed to that effort to develop fresh milk production, both quantity and qualitywise, since the early 80s. In the 3 small milk collection districts allocated to Nestlé by the government, fresh milk intakes have increased twentyfold, from 0,5 mio litres in 1980 to 10 mio litres in 1999, and Nestlé Lanka is continuously upgrading the milk collection infrastructure there in spite of war disturbances in some areas. To date Nestlé's milk collection network involves more than 25,000 farms, and an estimated 40% of the total fresh milk collected nationwide can be considered as Nestlé Lanka's contribution to milk collection. A committee of the Sri Lanka Parliament has recently complimented Nestlé Lanka for the good work done over the years in assisting the small farmers to develop their milk output.
As for the quality of fresh milk, which is such a crucial factor with this highly perishable commodity, especially in the manufacture of UHT products, Nestlé Lanka has, owing to substantial investments in money and technical training, successfully reduced by 75% the microbiological count in the fresh milk which the company purchases daily from the milk collection districts allocated to it.
Moreover Nestlé Lanka is the only company, beside the government-owned Kiriya Milk Industries Ltd, that uses local fresh milk to manufacture milk powders together with liquid milks and other milk-based beverages. Nestlé also manufactures locally a range of cereal products and infant formula, as well as a Coconut Milk Powder for culinary usages totally based on local raw materials, contributing thereby to the development of a local food industry capable of offering safe food products of high nutritional value and consistently good quality.
World market prices of dairy raw materials have soared largely due to fears over the BSE and foot-and-mouth diseases which have shut European suppliers out of the market. This factor, combined with the steep devaluation of the Lankan Rupee as against the US dollar, has contributed to increase the prices of imported full cream milk powder (64% increase on average from January 2000 to July 2001) as well as those of locally produced milk products using imported raw or packing materials.
Hit like the rest of the industry by cost increase purely led by external factors, Nestlé Lanka has refrained from passing to the local consumer the full impact of the increased costs of raw materials and manufacturing: while the company's costs have increased by 39% in the last 18 months, its selling prices to the consumer have gone up by 22% only over the same period.
On the contrary, when cost of raw material came down with the devaluation of Australian dollar vs the Lankan Rupee, Nestlé Lanka was the only company to decrease the selling price of its full cream milk powder in August 2000. In these circumstances further reduction of the selling prices of its milk powders would put the viability of Nestlé Lanka's milk operations in jeopardy, which would be detrimental to the interests of this public company's shareholders and of all the other stakeholders such as the thousands of dairy farmers who make a living out of their daily milk supply to Nestlé Lanka and the employees of the company.
We can but concur for a stronger development of domestic milk production, and are ready to share with the government and other milk producers the methods which have enabled us to increase twentyfold the fresh milk output in the small milk districts allocated to Nestlé Lanka.
Further, marketing of products for infants is subject to various restrictions laid down by the International (World Health Organisation) Code of Marketing of Breastmilk Substitutes, which aims at promoting breastfeeding. In particular free or low-cost supplies of infant formulae are very restrictively regulated. Nestlé follows the International Code as well as, in Sri Lanka, the local Code.
The conjunction of adverse conditions which Sri Lanka is confronted with is indeed to be deplored. Nestlé Lanka endeavours to cope with factors beyond its control in carrying on its operations there in the best interest of the consumers and of all its other stakeholders.
BMA currently have an article and interview on their website entitled 'Nestle and the Sri Lankan milk industry'. In addition, you can go to www.highlandlanka.com, which is the official website of Milco (Pvt) Ltd, (successor to the National Milk Board), the Government fully owned Company operating under the Ministry of Agriculture & Livestock, also responsible for the collection and processing of fresh milk in Sri Lanka.
