Coconut products export industries hit

Exports of Coconut products, kernel products in particular, are facing the danger of coming to a grinding halt with an estimated foreign exchange loss of approx Rs. 5000 million between May to December 2009. Continuous employment of approx 10,000 workers employed by these industries will be severely curtailed, a release issued by the Coconut Products Manufacturers and Exporters Association said.

It said : 'This situation has been brought about by the sharp increases in the import duty on edible oils (cooking oils). The domestic edible oil consumption in Sri Lanka is around 160,000 - 170,000 M/tons per annum and more than 50 percent of this demand is met by imported edible oils (particularly edible grade of palm oil and palm kernel oil). The prices of imported edible oils determine the price of locally manufactured Coconut oil.

'During January 2009 the import duty on edible oils was increased from 28 percent to Rs. 40 per Kg. During early April the import duty was once again increased to Rs. 60 per Kg. The current import duty along with other levies (VAT, cess, surcharge etc.) add up to approx 115 percent of the CIF value.

The release further said: 'Such exorbitant tariffs have resulted in the price of locally produced Coconut oil surging to Rs. 200 Per Kg from Rs. 135 per Kg during late March. The cost of imported edible oils, particularly edible grade of Palm oil (Palm Olein), will now cost Rs. 230 per Kg.

'When coconut oil prices are inflated to such artificial levels (the price of Coconut oil in the world market is now around Rs. 110 per Kg) the export industries such as desiccated coconut, coconut milk, coconut cream, coconut milk powder, etc, cannot compete with the domestic coconut oil industry. This situation has resulted in drastic decline in production in these industries. The loss in foreign exchange earnings is estimated to be around Rs. 5,000 million.

'The other adverse consequences of these artificial prices are :-

(1) Continuity of employment to approx 10,000 workers employed by these industries.

(2) Consumers in Sri Lanka pay approx 80 percent more for cooking oils compared to the world market prices.

'The policy-makers have failed to realize that Coconut is not only a domestic industry but it is also a very valuable export industry bringing significant foreign exchange to the country and employing thousands of people. It is important to strike a balance between the growers, domestic coconut oil industry and the export industries.

'The increase in import duty was imposed when edible oil prices in the world market were low, in order to protect the Coconut oil industry and the Coconut growers. During early April the price of Palm Olein was USD. 625 PMT in the world market. Since then prices have increased substantially to USD. 850 PMT.

'Hence there is no need for very high tariff barriers to continue.

'Exports of shell products (activated carbon and Coconut shell charcoal) too will suffer as a result of the above mentioned industries not working to full capacity as bulk of the Coconut shells are channelled from these industries, resulting foreign exchange loss to the country.

'The present high tariff barrier has given a huge protection to the Coconut oil industry and has virtually forced the export industries to come to a grinding halt.

'Usually from May onwards export industries come back to normal production with the arrival of higher crops but this year this has not happened.

'Once the lean cropping period starts from August onwards these export industries will be compelled to shut down completely. A consumer will have to pay more than Rs. 250 per Kg for cooking oil. 'When the government is encouraging all export industries to increase their export earnings to overcome the prevailing economic slowdown, the decision to increase the import duty on edible oils has placed the Coconut products export industries in the opposite direction.

'If the export industries are to come back to normalcy the import duty on edible oils will have to be reduced back to 28 per cent, prevailed during December 2008. This quantum of import duty with other levies will add up to approx 65 per cent of the CIF value of the imported edible oils which will bring about a workable balance between the export industries, consumers, local coconut oil industry and the growers. During past couple of years export industries have repeatedly appealed to the policy-makers to strike a balance between all the stake-holders and fix a suitable import duty on edible oils for a period of one year without making any ad hoc changes. In 2008 the import duty was revised as much as 5 times and this year it has already been revised twice.

'Such `ad hoc' changes are setbacks for the export industries which are competing in the world market with other Coconut producing countries.

'The export industries have made an urgent appeal to the Government to bring about a solution to this problem for their existence'.