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FINANCIAL CHRONICLE™ » DAILY CHRONICLE™ » Sri Lanka dairy firm eyes former war zones, exports

Sri Lanka dairy firm eyes former war zones, exports

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Redbulls

Redbulls
Director - Equity Analytics
Director - Equity Analytics

Aug 28, 2012 (LBO) - Lanka Milk Foods, a unit of Sri Lanka's Stassen group said it was eyeing former war zones in the north and east of the country for expansion, while it operated within complex state interventions.

LMF's imported milk business was hit by state price controls and import duties but it also has liquid milk and other products including two dairy farms which had made profits.

While the liquid milk sector was helped by protectionism, imported milk powder sector was hit by both price controls and higher tariffs.

"In fact, there were situations where the selling price was less than the price of importation, which badly affected the industry," LMF chairman Harry Jayewardene told shareholders in the firm's annual report.

"Even though global milk powder prices rose considerably, we were unable to increase prices locally in accordance with these increases as the Consumer Affairs Authority did not give us permission to make a price increase for a long time.

"This led to many milk powder brands curbing their advertising and promotional spend, as the returns generated did not justify the investments."

"Your company has been fortunate that the falls in the powdered milk segment have been offset by our other product categories, given the strategic diversification of our product portfolio."

Analysts say the situation with milk powder was a classic display of state interventionism and nationalism clashing head on.

Days after the consumer affairs ministry refused to relax price controls on imported milk following a weakening of the exchange rate, the finance ministry jacked up import taxes to give profits to rent seeking dairy farmers at the expense of the poorest consumers.

Imported powdered milk had given a affordable alternative to expensive liquid milk - especially for poorer people who do not have refrigerators.

But Sri Lanka's ruling class as well as 'self sufficiency' nationalists have long tried to suppress freedom of the people to consumer powdered milk using legislative power and taxation by midnight gazette, while citizens were literally asleep.

The efforts at making dairy products more expensive, including mandating higher prices to be paid to farmers effectively making daiy products a 'luxury good' are ostensibly aimed at improving 'food security'.

Meanwhile Jayewardene said the state has launched an 'effective' marketing drive to push liquid milk consumption. Taxes on imported high yielding cows and diary equipment have been relaxed.

"This will undoubtedly benefit the local dairy industry as an attitudinal change among consumers is needed to realise the nation’s vision of being self sufficient in milk," Jayewardene said.

Self-sufficiency or autarky was a goal pursued by national-socialist Germany. 'Food security' itself, analysts say, gained ground in nationalist Germany after Britain and other allies blockaded the country and its allies during World War I, threatening global free trade.

Jayewardene said the firm's Ambewela Farm made profits of 23.3 million rupees and the Pattipola Farm made 32.3 million rupees in the year to March 2012.

In former war zones in the north and east the dairy industry was now developing. It also had market potential.

"In terms of market penetration locally, I see further potential in the Northern and Eastern markets which we will pursue intensely during the coming year," Jayewardene said.

LMF's sells powdered milk under its 'Lakspray' brand, 'My Juicee' fruit drinks, and 'Ambewela' branded liquid milk, cheese and yoghurt. A malted drink 'Daily Active' and an energy drink had also been launched in 2012.

"We will make continued efforts to penetrate export markets with our juice and milk packs. Already, our Daily brand has become a leading dairy product in the Maldivian market," Jayewardene said.

The firm was planning to expand it liquid milk segment with health based products and was developing new cheese to "to better suit the local palate."

"Such niche value-added products will enable us to combat imported options which retail at higher prices," Jayewardene said.

"We have also planned to re-launch our Ambewela Ball cheese range with an international design, during the year."
http://lbo.lk/fullstory.php?nid=184285489

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