The Asian continent has been known as the region heavily involved in farming in ancient times, and still certain countries in the region are known as farming countries. Sri Lanka is one such country which was known to be a farming country. Anyone who knows about farms will also know that it consists of cattle, lots and lots of cows. Times have changed and Sri Lanka has become a state heavily dependent on exports of value added goods. Hence, the focus has shifted from farming to other goods such as apparels, rubber products, and value added tea.
When it comes to achieving self-sufficiency in dairy products, Sri Lanka has a long way to go. Currently the whole nation is dependent on imported dairy products to satisfy demand. Only a handful of local companies have been carrying out production in the dairy business.
In order to achieve self—sufficiency in milk production, the government has taken a few initiatives. This has led to total cattle and buffalo milk production increasing significantly by around 18% to 205 million litres in the first half of 2014. This growth was recorded on top of the 19% growth in the first half of 2013. Total milk collection by large milk product manufacturers increased by 6.5% to 99.5 million litres in the first half of 2014. It is expected that this would increase considerably with the completion of the modernization of three main factories under MILCO.
Cattle and Buffalo Population (2004 – 2013)
As the figure above illustrates, the population of cattle has relatively remained the same over the last 10 years, except for the brief peak we had in the year 2011. At the same time the population of buffalo has increased slightly. This growth of cattle and buffalo remaining slow has been the main reason for the large number of milk & milk product imports, to satisfy the demand in the domestic market.
While the milk production of the Sri Lankan market has shown a CAGR of 7.2%, this growth has not been able to match the growth in demand. CAGR of cow milk has been 6.99% in the last 10 years, while the CAGR of buffalo milk has been 8.25% for the last 10 years.
As the figure below illustrates, the imports of milk and milk products have been consistently high in the last 10 years, and this gives a clear indication as to the fact that Sri Lanka is not self-sufficient when it comes to dairy products. There has been a drop in imports in the last 2 years greatly owing to the CDC issues faced and also due to the high tax rates on milk products.
The cost of 750 ml of milk has gone-up to almost LKR 30 from LKR 17.7 in the last 10 years. However, at the same time the retail price of 750ml of milk has almost tripled in the same time period. This shows that the milk & milk product market is a very lucrative market to operate in and that the operators in the market are charging a high margin due to the high demand and low number of suppliers.
Pelwatte Dairy entered into this market with the objective of becoming the market leader by providing 50% of the demand in the market. They have been able to make great strides in this industry and are trying their best to fill the gaps identified in the market.