Abstract
This paper examines the economic effects of milk powder imports on domestic milk industry and consumers’ welfare. Domestic milk production fullfilled around 40 % of the demand in 2016. The generalized inverse demand system model was employed. The result shows that a 10% increase in milk powder imports increases consumers’ welfare by USD 20 million and fresh milk and local milk powder industry will suffer economic losses. Therefore, until domestic producers develop the capacity to compete with international competitors, government should provide subsidies, credit facilities and technical assistance to all dairy farmers, middlemen, milk collecting centers, dairy farmers associations and cooperatives involved in domestic dairy industry. Government should provide assistance and facilities to domestic fresh milk processors to promote fresh milk consumption by non-price competition strategy. Importers of milk products and local milk processors could use this finding to develop their business strategy. Keywords : Consumer welfare; Generalized Inverse Demand System Model; Import of Milk Powder JEL Classifications: Q11, Q17, Q18 DOI: https://doi.org/10.32479/ijefi.10213
Highlights
The dairy sector is considered as a potential sector to contribute significantly to Sri Lanka’s economic development
The current annual milk consumption in Sri Lanka is around 700 million liters per annum and annual per capita consumption is around 35 liters per annum
This study concludes that demand for imported milk power is more inelastic than fresh milk and local milk powder
Summary
The dairy sector is considered as a potential sector to contribute significantly to Sri Lanka’s economic development. The current annual milk consumption in Sri Lanka is around 700 million liters per annum and annual per capita consumption is around 35 liters per annum. Per capita consumption of milk and milk products in Sri Lanka is lower than in other South Asian countries. Before Sri Lanka introduced open economic policy in 1977, the local milk production fulfilled the 80 percent of local demand in Sri Lanka. Local milk production only fulfills around 33 percents of domestic consumption requirement by 2009. Sri Lanka heavily depends on milk imports, mainly as powdered milk to fulfill this gap of demand. There is a need for expansion of dairy production in Sri Lanka since country depends mainly on imports to fulfill the domestic demand requirement for dairy products. Domestic production of milk powder is 11.610 MT and the importation of milk powder
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