Milk companies...

“Our profit margin decreased to 1% when the dollar rose to Rs. 115 and it has now risen to Rs. 122 and continues to rise. The import cost of a kilogram of milk powder is now in the region of Rs. 520. The total cost with taxes, packaging, transport charges and rebates is around Rs.650,” he said. Earlier the companies had been making a profit of Rs.10 to Rs.12 a kilo. But it had come down to a low level,” he said.

A top official of Anchor milk Company, Fonterra said the devaluation of the rupee by 3 % 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 demand- ing a price increase because of the rise in fuel prices as well. Since the price is controlled by the Ministry of Internal Trade and we cannot change the prices whenever we want we depend on the Ministry to take proper steps in this regard,” he said.

Delmege Forsyth Managing Director Asoka Bandara said it was difficult for the company to place orders to import adequate stocks of Milgro milk powder due to the 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$ 3,800US$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 the rupee? he asked. " Our only option is to reduce imports. This will result in a shortage of milk food in the country,” he warned.

CB Governor Ajit Nivard Cabraal said this was a “temporary ‘overshoot” and connected to seasonal demand. “It’s nothing to get worried about as the Rupee will stabilize,” he added.

This assertion was earlier echoed by Treasury Secretary P.B. Jayasundera who told reporters on Thursday the Rupee should stabilize below Rs. 125 following the initial adjustment to the currency float and seasonal demand.

Both Dr. Jayasundera and Mr. Cabraal referred to the yawning trade deficit of $10 billion- imports-$20 billion and exports $10 billion. They said the recent CB directions to banks to limit credit on unnecessary imports coupled with high lending rates with the same purpose were aimed at reducing the trade deficit.

Mr Cabraal, responding to criticism that foreign reserves had fallen sharply, said he was confident that $500 million would come through the stock market this year with $200 million already in. With other foreign revenue and loans, the foreign reserve position this year would be at a satisfactory level.

While public perception is that Dr Jaya- sundera and Mr. Cabraal differ on economic policy issues particularly CB foreign exchange management, the Treasury Secretary had told the Parliamentary Consultative Committee on Finance on Friday that the CB policy measures enforced on February 3 were the right decisions and the best way to halt any further fall in foreign reserves.

He made the same acknowledgement at Thursday’s briefing, saying the positive impact of these CB policy measures would be felt only at the end of the festive season next month. Mr. Cabraal was not present at the parliamentary meeting, chaired by Senior Minister Sarath Amunugama in the absence of President Mahinda Rajapaksa who is also the Finance Minister, Committee sources said.

The ‘wild’ dollar fluctuations have caused some panic amongst the public fearing that cost of living would escalate. However this is not the first time in recent years that the dollar has gained sharply. It rose to Rs 120 a dollar, according to an April 26, 2009 report in the Sunday Times, just before the IMF approved a bailout package of $ 2.6 billion. ( See http://sundaytimes.lk/090426/financialTimes/ft318.html)