Sri Lanka 's milk food importers feel the pinch of rupee depreciation
Sri Lanka ' s milk food importers and distributors are now greatly feeling the pinch of the 3% rupee depreciation and fuel price hike, regardless of efforts by the Central Bank and the government to cushion the blows from the public.
Six milk food importers and distributors have made repeated requests to the Consumer Affairs Authority ( CAA), for a price revision due to prevailing world market prices and the depreciation of the rupee.
The distributors of brands such as Anchor, Nespray, Maliban , Diamond and Milgro have citied the high cost of importing, manufacturing and distributing milk powder as a reason for their request
The companies have warned that their industries would be badly affected unless an upward revision of prices was allowed without delay and have sought an intervention of the President to settle their grievances.
Milk food companies have stated that the price of a kilogramme of milk powder should be increased by Rs. 37 after the value of the rupee depreciated against the dollar
There could be a milk powder shortage in the country if the government does not allow a price increase in the New Year in April, milk powder importers warned. They noted that local milk powder companies will have to stop importing milk powder as they have suffered heavy financial losses in the past few months.
Chief Executive Officer of Maliban, D L Weerasuriya noted that the US dollar rate has recoded a new high of Rs.123 this week and the import cost of milk powder has also increased accordingly . The local transport cost has also increased by 15% due to fuel price hike. The company has deployed nearly 240 vehicles for milk powder distribution countrywide and the fuel price increase was also an additional cost for them.
The import cost for a kilogramme of milk powder is US $3.95 and the total cost for a kilogramme was Rs.655 including taxes, packaging costs, 5% transport cost , sales margin etc. He said that the companies were keeping a marginal profit of Rs.10 -12 per kilogramme by selling milk powder to consumers at a reasonable price.
Mr. Weerasooriya said that the government has permitted them to keep a 4% profit margin but they cannot get even 2% profit under the present circumstances. Therefore they are requesting only Rs. 15 increase for a packet of 450 gram milk powder to meet the rupee loss due to the currency depreciation.
"All 6 milk powder importers incur a loss of Rs. 37 for every kilogram of milk powder they sell in the local market due to the devaluation of the rupee and increase of the US dollar. The demand to increase the price of milk powder has nothing to do with the global market price or any other overheads but mainly on these two factors," Mr. Weerasuiya stressed.
" On the other hand we import high quality milk powder from Australia and the price for the importation of milk powder products have increased drastically", he said adding that they will not bring down low quality milk powder from countries like China and India as it might harmful for human health" . Citing the recent melamine incident in China, he said that his company is very cautious about quality standard of milk powder.
He pointed out that there is no price control for essential food items like, sugar, dhal, bread, canned fish etc. Even the price of milk products like curd, and yogurt is not controlled. The price of a pot of curd has been increased by 100% recently. Therefore there is no logic in controlling the price of milk powder under the present market conditions, he said. He called upon the government to allow companies to sell milk powder at a reasonable price to consumers while making a substantial profit to maintain the companies. Otherwise we will have to close down these companies throwing out employees to streets.
Roshan Kulasuriya, Corporate and Human Resource Director Fonterra said that the devaluation of the rupee by three per cent in the 2012 Budget, had a negative impact on milk powder importers, and the situation took a turn for the worse with the rupee depreciating to about Rs.123 against the dollar.
" We have to pay at the latest exchange rates when clearing shipments. It is a cost factor. Our distributors and agents are demanding a price increase because of the rise in fuel prices as well.
" As the market leader of Milk powder , we are also affected by the rupee devaluation and the fuel price hike', he said. " Since the price controls are controlled by the Ministry of Cooperatives and Internal Trade and we cannot change the prices whenever we want. We depend on the Ministry to take proper steps on this regard," he said.
Sri Lanka ' s annual consumption of milk powder is in the range of 58,000 metric tons, of which 50,000 metric tons are imported, he said. "This show how heavily dependent the country is on foreign spray dried milk powder" he said. He added that over 80% of milk powder is imported to the island, whilst the rest is produced in the country.
The Consumer Affairs Authority takes three to four months to decide on price increase and the companies will have to bear the loss, Mr. Kulasuriya said.
He noted that the company is losing Rs. 37 to Rs. 40 per kg and there is no alternative other than increasing the price even by 15% he added. "We have been requesting an increase in prices from the Consumer Affairs Authority through price increase applications. However every month the application has got rejected and the following month a fresh application is submitted. This cycle has been ongoing to date, he said. Therefore it is better to allow companies to decide on the price of Milk powder he added.
He revealed that importers collectively consider over a drastic cut on consignments to ward off swelling losses following the government's continued refusal to grant a price revision ranging from 10% to 15%, he said
A 400 gram pack of milk powder, now sold at 264 rupees, will go up by about 15 rupees if the upward price adjustment sought by importers is given the go ahead by the Consumer Affairs Authority (CAA).
"We sought this increase in line with increasing global milk food prices and the depreciation of the rupee few months ago, but the authorities are still dragging their feet on this critical issue", he complained. " We can no longer continue to incur losses selling our products" he added. .
Milk Powder importers are yet awaiting the government approval for a price increase of Rs. 15 for a 400 gramme packet and Rs. 37.50 for a kilo packet considering the devaluation of the Sri Lanka rupees. A 400 gramme packet costs Rs. 264 and a kilo packet Rs. 647 at the moment, while the request for the increases had been made a couple of weeks back, they said
Asoka Bandara Managing Director of Delmege Forsyth and Company Limited ,local agents for Milgro said that it is difficult for them to place orders to import adequate stocks of milk powder due to rupee depreciation The price of a metric ton of milk powder, which Sri Lanka imports mostly from Australia and New Zealand, has now ballooned to a US$ 3,800- US$ 4,000 range
" How can we be expected to sell milk food products at the existing rate structure when the price per ton had shot up due to devaluation of rupee he asked. " The only option is to reduce imports, which will result in a shortage of milk food in the country, he pointed out. "We are in a tight spot as we cannot take any more losses" he said. " We also cannot afford to confirm fresh import consignments at such high prices", he added.
The price committee of the Consumer affairs Authority ( CAA) is to hand over a report on world milk food prices and profit margins of local milk food importers and distributors. Decision on the price hike will be taken on the recommendations made by the committee, a senior official of the Ministry of Cooperatives and Internal Trade said.