Cargills to engage Govt. in reviewing destructive taxes

Cargills (Ceylon) PLC will engage the government to rethink what they term as ‘destructive’ taxes such as the deemed Value Added Tax (VAT), officials said.

“The government needs to look at deemed VAT in agriculture, dairy, pharmaceuticals. We won’t pass this cost to the producers or the consumer. This increases our costs and squeezes our margins," Ranjith Page, Deputy Chairman Cargills told the Business Times on the sidelines of a media conference on Wednesday.

The media conference was to announce the Rs. 2,550 million or 8 per cent equity stake by IFC in Cargills Foods Company Pvt Ltd (CFC), the retail subsidiary of Cargills to help the company expand its operations in the country, enhance its backward integration system and develop the efficiency of its supply chains.

"The endorsement of our retail business by an institution of the calibre of IFC is a major positive for our group. Our business model is driven by the principle of value creation for consumers, producers and the community through sustainable investment and growth that is focused across Sri Lanka. Nevertheless, over the past several years this ethos has faced serious challenges from the macro and fiscal environments. Together with IFC we would look to build on our business model, fine-tune our systems and processes and meet the expectations of all our stakeholders,” Mr. Page told the media.

Cargills’ retail and wholesale distribution activities account for approximately 84 per cent of its total revenue from continuous operations (as of financial year 2013), while retail operations alone contribute 79 per cent. The company’s food retail operation is the largest amongst private supermarket retailers in Sri Lanka by both revenue and total store count. IFC's investment in the company is expected to help advance the internal processes of Cargill's retail business. CFC is currently moving towards internationally accredited management systems for environmental and social standards while continuing to open opportunities for employment for rural youth and expand sustainable markets for farmers.

Sri Lanka’s modern trade sector is at a fairly early stage and accounts for about 16 per cent of the total trade in the country. “The sector has substantial impact in streamlining supply chains, enhancing food safety and quality standards, benchmarking farm gate prices for fresh produce and fronting rural township development. In an environment of steady economic growth and consistent policy, the country’s retail sector has the potential to significantly con- tribute towards regional economic prosperity and as Cargills Foods expands across Sri Lanka it will create more jobs and opportunities for skills development,” said Adam Sack, IFC Country Manager for Sri Lanka and Maldives.

“IFC will share its global experience and industry knowledge to help improve efficiency and standards throughout the company’s supply chain.”

Cargills chain of supermarkets currently has a market share of about 40-45 per cent in the local organized food retail sector and slightly less than 7 per cent of the estimated total grocery spend, according to industry analysts.