Milk powder - storm in the tea cup

By Dhaneshi Yatawara

Being an essentially required food by every person, irrespective of age, gender or social status - milk, as a liquid food demands a high value. Amidst such high consumption, price of milk powder is getting higher and higher day by day, globally. We being Sri Lankans face this challenge as it is milk powder is the commonest among us. For its convenience and greater availability milk powder has become common milk source in every household.

By end October the Government needs to renew the agreement for the milk price between the importers and then in order to protect the consumer, frankly the public of the country. Being in the 'essential' basket and with a never ending demand, milk powder price seems to be always in mid of a storm.

Milk powder comes under three basic categories - full cream, non fat and infant milk. Categorised by the HS codes (a globally accepted division system used during importation) milk powder brands with special formula do not fall into any of those. It is how the system of importation is processing in the global market, notwithstanding our likes or dislikes.

As lately agreed by the Government and the milk powder importers a 400 gram pack of full cream milk powder maximum price is Rs 195 and a 1 kilo pack maximum limit is Rs 460. The Government authorities have requested the importers to make the 'welfare pack' readily available in the market that would mostly benefit the low income groups of the society. Previously these packs were available only in cooperative shops and outlets of several welfare societies. The pack has the maximum price level of 165 rupees.

Amidst all these agreements, regulations and many methods to keep the prices low as possible, an average person finds it still expensive. Many give various reasons and yet very few can at least reach the exact.

Under the section 14 of the Consumer Affairs Authority Act No. 09 of 2003, the Authority may enter into agreements with any manufacturers or traders of goods provide for maximum price, the standard of any goods manufactured, any condition required on the manufacture of any item. In addition, section 18 of the Act states that no manufacturer or trader shall increase the retail or wholesale price of any goods in the essential basket except with the prior written approval of the Consumer Affairs Authority.

Under the same section, part one, authorisation is given to the Minister to order, in consultation with the Consumer Affairs Authority, to prescribe goods or services as essential, where the Minister is of the opinion that any goods or services is essential for the life of the community. As per the CAA Act, a manufacturer or trader who seeks to obtain the approval of the Authority should make an application and the Authority shall after holding such inquiry may consider a reasonable increase - it may be either the requested increment or any other increase which the Authority may consider as reasonable. The Authority is bound to respond with in thirty days from the applying.

Focusing attention on the consumers in the present context of the new economic order and trade procedures the Consumers Affairs Authority (CAA) was set up. The Consumer Affairs Authority Act was passed in the Parliament on January 2003 which was enforced with the establishment of the Consumers Affairs Authority. The CAA Act repeals the Consumer Protection Act No.01 of 1979, Fair Trading Commission Act No. of 1987 and Control of Prices Act (cap 173).

Explaining the aim of establishing such Act the official Website of the CAA states, "It safeguards the rights of not only the consumers but also the trader who are subjected to injustice. Both the goods and services come within the ambit of the Act."

According to experts of the field if an importer or a manufacturer introduces a new packet in a new weight of an existing brand or a new brand the company has the sole right to decide the price. The CAA Act does not provide authority to intervene such instances at introductory level. The Act provides authority only to revise a price of an already existing brand.

Pricing factor

"Pricing is a very difficult factor to control in the present open economy and according to the flow of the world market," a high official of the Consumer Affairs Authority stated. Accordingly the CIF value of 1000 kilos of milk powder is US $ 5200 currently. When the taxes are imposed, transportation costs and company margins added the cost for an importer would be very high. Constant fluctuation of the dollar value adds to intensify the situation.

Retail market

Many leading super market managers are currently facing a downturn in milk powder supplies hence, unable to meet the demand. Thushan Amarasooriya, Marketing Manager of the Cargills Super Market chain said at present they are not receiving enough stocks from suppliers to meet their demand especially, full cream milk. When we spoke to Deputy General Manager of Laugfs Sunup super market chain P.T. Gunasinghe said "we have not gone down in demand. Customers are purchasing milk powder since it is an essential item to our day to day life. Yet we are facing a reduction of supply in several top milk powder brands. Hence, meeting the demand has become difficult."

Drought factor

Australia faced a severe drought during the last three to four years that affected their dairy market significantly. The drought dried up the grazing lands and as result cattle were deprived of their fodder. Added to this, last winter season also affected the Australian grazing lands thus damaging the dairy industry that was recovering from damages due to the past drought.

Australian Continent itself is low in its water resources. Hence a drought that persisted for three to four years has affected cattle fodder in the grazing lands that consumes a lot of water.

Loss of fodder due to the drying up of grazing lands caused a price hike in cattle feed. The farmers have been unable to cover their loss through selling milk and other dairy products. Eventually prices of milk and dairy product market have started to increase.

Australia exports 13% of their dairy products to the world market whereas New Zealand exports 32%. The European Union contributes 34% and the USA and Argentina contributes 6% and 4% respectively. Other countries involved in this industry contribute only 11%.

Liquid milk, the alternative

Do we have an alternative to all these issues? National Livestock Development Board Chairman Dr. Chandrawansa Pathiraja sees the price increase of powder milk as a positive step towards the manufacturing and distribution of liquid milk. "Currently we are producing only 20% of the liquid milk consumption demand and we are seeking all the ways and means to increase," Dr. Pathiraja added stating that it would be a long lasting solution to the high milk powder price.

"In the past Sri Lanka did not import milk powder at this rate. We have to change our consumption patterns," he added. According to Dr. Pathiraja the main problem the Sri Lankan liquid milk market facing is the low production due to the lack of good quality dairy cows. "In Sri Lanka there are 1.1 million neat cattle (local dairy cows) that has not significantly increased during the last 30 years," he added. Most of these animals are ending at slaughter houses at a very high price giving a negative impact to the more important dairy industry.

"With the approval of the Government we are planning to start the process of breeding good quality (high milk producing) dairy cows," he said. The plan consists of long term steps and short term steps. According to the Chairman to give the industry a boost it needs 60,000 dairy cattle immediately. "With the approval of the Cabinet of Ministers we have started importing 15,000 dairy cattle in batches," Dr. Pathiraja explained.

These imported animals will be handed over to 100,000 dairy farmers established islandwide - these farmers have been identified as actively involved in the industry. "Through the Gama Neguma programme we are issuing these animals to these selected villagers," he added.

According to reliable sources the Sunday Observer learns that the Act is to be amended soon to secure the rights of the public from unreasonable, unethical marketing strategies. Last Thursday Oct. 4 the Cabinet decided to amend the CAA Act to end the monopoly in the wheat flour market.