Milk Prices

I went to get some milk today for my cereal. It was Rs. 155 for a liter of Ambewela (which I bought) and Rs. 165 for 250g of Rathi powdered milk. I mention this only because milk is the latest flash point in Sri Lanka’s ongoing consumer trauma. Just a few days ago, local farmers were so pissed at low profitability that they were pouring milk down the Hatton streets, even bathing in it. In response, the government has raised taxes on (imported) milk powder by 15%. The end result, however, is one more higher priced consumer good.

I sympathize with the local farmers, but supply and demand isn’t something the government can manufacture. Honestly, I don’t get the demand for powdered milk at all. I do wish milk would come in something beside paper cartons that make me spill everywhere, but I still buy Ambewela, which comes from Nuwara Eliya apparently. I should note that I only buy Ambewela because like two years ago they gave me a free glass with every two-pack. At this point I had no glasses and this seemed like a win. They stopped giving the glasses 1.5 years ago, and yet I still blindly buy Ambewela. So perhaps better marketing would help.

That said, apparently prices have gotten so divergent that many distributors are simply not buying local milk anymore, with the exception of big chains like Cargills. Hence the farmers are protesting.

The traditional government response, however, is bad economics, which ultimately hits the consumer. It’s protectionism, trying to limit imports, but for a country like ours (any country really) it really doesn’t work. It’s like pushing air around a limp balloon. The pressure will just pop up somewhere else. In this case, the government is effectively subsidizing dairy farms at the expense of all consumers (who buy milk). I mean, I buy milk like once a month, but people with families buy it every week.

There’s a subcontinental fetish with milk products – especially for children – as you can see from advertising. Horlicks, Milo, Nestomalt – all are considered an essential extension of mother’s love. Plus milk tea is often more milk than tea. Hence, these are items that people buy constantly and if they are buying milk powder it’s probably out of economic necessity. Now, however, milk powder is up by Rs. 92 a kilo, so presumably without taxes it would be much cheaper than it is. This is another essential good like tinned fish, which is also imported and taxed heavily.

So, do I think it’s good policy to subsidize Sri Lankan dairy farmers? No, not really, because it comes at the expense of Sri Lankan consumers and creates another inefficient subsidy. It is, however, almost necessary politics.

In other news, my cereal had ants in it. I would eat them out of hostility, but they taste bad.

21 Comments

  1. Is daily milk consumption necessary in the first place? Humans are the only known species that consume milk after they are weaned. Perhaps people could start looking for other food options that can replace the nutrients provided by milk?
    That being said, Sri Lankans have a strange addiction to powdered milk; that might explain why local farmers have problems selling their fresh milk.

  2. This is an opportunistic tax increase. They were waiting and waiting…. to grab this kind of opportunity. This will lead to malnourish our kids further. Giving some subsidy to private sector who would invest in milk processing is not a bad idea if the government itself can not do it. We can not increase the local production in one night. It takes years to place necessary arrangements to buy, process and distribute a commodity like milk. At the beginning, the farm-gate price could be higher than that of the price of finished-imported product (especially if the product is imported from China). However, it is very important that we start from somewhere, if we truly want to increase local food production.

  3. Addiction to powdered milk is only one side of the problem. They are much cheaper than the fresh milk. That is the real reason behind this addiction. Having said that, many Sri Lankan do not like fresh milk if they are readily available at a comparable price.

  4. If there was better quality control and distribution of fresh milk, I would gladly buy it than powdered kind. I hate powdered milk but there is not much of an alternative for me. So when milk powder prices increase, I may still buy it until it reaches a level I cannot afford – after that I may switch to plain-tea. Like Indi says, that will not solve the problem. Let’s face it, this government was great at solving the military problem with LTTE but sucks at just about anything else.

    My biggest dilemma is who to vote for during the next election.

  5. That could be because they are difficult to store. Remember there is still quite a large population who cannot afford a refrigirator.

  6. The claim that a majority does not use refrigerators is getting less and less true by the day. Please see Figure 4 of http://www.lbo.lk/fullstory.php?nid=975766409. Over 60% of households in Western Province had them in 2009, and several other provinces had over 30%. That was 2009. Surely, two high-growth years must have increased them considerably.

  7. Ah, milk. Wonderful stuff, I drink a couple of litres a day. Back in the UK there was a huge choice, in terms of fat content, taste and source. Daily favourite was Dutchy Organic, with Jersey & Guernsey full cream for special occasions. So speaks a man with the genetic background of lactose tolerance.

    Then I moved to Sri Lanka and, once I’d got used to the different taste of milk, I quickly got fed up with buying fresh milk that clearly hadn’t been stored properly. So to UHT cartons. But for some unknown reason, this milk isn’t always available (especially the low-fat version). So I stock-pile, which is an expensive business. I have tried powdered milk, but I’m not sure what it’s good for. Tea, perhaps? It’s quite a bit cheaper than the UHT cartons.

    I’d guess the popularity of the powdered milk is based on convenience, reliability, price, lack of refrigeration and the all-pervasive marketing machine. Sagara has it right – increased tax on milk powder will lead to malnutrition in a country that can produce plenty of milk. Increasing import taxes without tackling the supply side issues won’t solve this, but it does hurt the poor, potentially permanently.

    As a side-issue, I often wonder why countries don’t retaliate with higher import duties on Sri Lankan products? Goodwill? They take a hit to avoid spiralling into a 1930’s tariff war again? Whatever is the case, Sri Lanka’s lucky there isn’t an import duty quid pro quo.

  8. Don’t we make powdered milk in sri lanka? I think highland is entirely manufactured locally.

  9. Also this isn’t a matter of supply & demand. It’s a matter of cost, imported milk is cheaper. We can’t produce at those prices.

  10. Refrigeration alone isn’t the issue, though it’s a large part of it. Even with refrigeration, an open carton of milk goes bad relatively quickly in comparison to powder. Also, powdered is cheaper when you consider the amount of liquid milk you can get from it — most low income households make the milk much thinner to make the powder last. Also, many Sri Lankans don’t like to give children chilled milk; which means heating it up, which is an additional expense. So all in all, powdered is the more practical choice for many. Growing up, I rarely had anything but powdered milk.

  11. “So, do I think it’s good policy to subsidize Sri Lankan dairy farmers? No, not really, because it comes at the expense of Sri Lankan consumers and creates another inefficient subsidy. It is, however, almost necessary politics. ”

    You’ve hit the nail on the head. The questions is between half a million farmers and four million households, who should the Government help?

    Also, is it really about helping farmers or bringing in taxes? Cement and gas went up as well.

    http://www.lbo.lk/fullstory.php?nid=346042316

    http://jestforkicks.blogspot.com/2012/05/tis-season-to-be-jolly.html

  13. Pingback: indi.ca »i prezzi del latte | Latte e Derivati

  14. it’s the livelihood of those farmers we’re talking about, the 4 million households don’t survive on powered milk. Are the cement & gas hikes taxes

  15. Sri Lanka General Public :

    Ok.. we will give up… hoping that country would develop and law and order would prevail.

    Sri Lanka Politicians :

    We will continue enjoy many perks (Free Petrol, Electricity, Telephone, Cheap food @ parliament, and many more) and try all other means (corruption) to develop ourselves (May be if anything left, we maybe consider developing the small parts of the country).

    We will continue to take ‘law’ in our hand and label anybody who talks against us as ‘Supporters of LTTE’

  16. The fact that despite everything you’re still in a dilemma regarding who to vote for speaks absolute volumes for the depths that this country’s opposition parties have sunk to. Good bye democracy, hello hereditary rule :(

  17. I believe a few sprats or any small bony fish could provide the same level of nutrition. But could we get used to living without the flavour of milk and milk based products?

  18. All Highland products are quite OK, other than their powdered milk.

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