The finance ministry had raised an import levy on milk powder by 25 rupees to 88 rupees a kilogram.
Sri Lanka's rulers used to charge as much as 125 rupees from a kilogram of milk powder in bid to get taxes and also give profits to the domestic milk industry where yields are low.
In February taxes were lowered as global milk powder prices spiked. Ironically there is also a state price control on the product, though it is taxes that keep prices higher than the rest of the world.
Sri Lanka's Consumer Affairs Authority at first refused to allow distributors to raise milk powder prices generating a shortage in the market and disrupting supplies, and later allowed a price increase.
Critics say the Consumer Affairs Authority had earlier disrupted the supplies of cement hitting house builders and construction firms and also created a so-called 'black market'. A black market comes up when the state controls prices.