By Asoka S. Seneviratne –

“Our success comes down to world-class farming systems, innovation, and the passion of our farmers to produce high-quality milk while caring for animals and the environment.” ~Dr. Tim Mackle, CEO, DairyNZ

The dairy industry in Sri Lanka has long been a nationally significant sector, serving as both a nutritional cornerstone and a vital source of livelihood for rural communities. From early colonial efforts to enhance livestock to state-led reforms in the post-independence era, the sector has experienced a complex journey shaped by public policy, international trade, and domestic challenges.

A pivotal moment came with the establishment of the Ceylon Milk Board in 1954 under the Ministry of Agriculture. This marked the country’s first structured attempt to organize milk collection, processing, and distribution under state oversight. The Board was tasked with stabilizing farm-gate prices, improving milk quality, and expanding access to safe, pasteurized milk across the island. It also introduced school milk programs and launched urban milk delivery systems, laying the foundation for a national dairy supply chain.

Despite these efforts, Sri Lanka has continued to rely heavily on imported milk powder, primarily due to low on-farm productivity, a lack of cold storage infrastructure, and fragmented smallholder production. However, a renewed focus in recent years, including the revitalization of state-owned enterprises and international cooperation with countries like New Zealand and India, indicates a promising shift toward self-sufficiency and sustainable dairy development.

What is the recent policy initiative by the President?

President Anura Kumara Dissanayake (AKD) has recently taken decisive action to strengthen Sri Lanka’s domestic dairy sector. On June 3, 2025, he convened a high-level strategic meeting at the Presidential Secretariat with senior officials from the Ministry of Agriculture, MILCO, and the National Livestock Development Board (NLDB). During this discussion, he emphasized the urgent need to transform state-owned dairy entities (MILCO and NLDB) into efficient, market-driven, and commercially viable businesses capable of meeting local demand.

Specifically, President Dissanayake highlighted:

* Minimizing production costs and maximizing resource use.

* Shifting MILCO and NLDB toward sustainable profitability.

* Strengthening accountability and managerial effectiveness to reduce waste and inefficiency.

This initiative reflects a clear concern that, without reform, Sri Lanka will continue to rely on costly dairy imports, fulfilling about 60% of dairy needs. His vision is to establish a self-reliant dairy sector, grounded in cost efficiency, operational transparency, and strong public–private cooperation. The purpose of this paper is to provide essential details of the President’s policy initiative and any challenges related to policy implementation.

Detailed Analysis of the Proposed Policy Initiative

In short, there are five (5) essential policy initiatives for the President’s initiative.

i. Institutional Reforms & Governance

In light of the above, it is essential to restructure MILCO and NLDB into efficient, commercially viable entities with performance targets and regular external audits. Furthermore, establishing an independent Dairy Regulatory Authority (DRA) is crucial to ensure and enforce quality standards, manage subsidies, and oversee market conduct.

ii. Private Investment & Cluster Agriculture

This aims to establish legal frameworks and incentives, such as land access, tax breaks, and credit, to attract private investment in commercial dairy clusters, modeled after ANZDEC (Auckland, New Zealand Development & Engineering Consultancy for the Sri Lanka Dairy industry). The consultancy link can be accessed at the following locations: industry.gov.lk, researchgate.net, reddit.com.

ANZDEC is a specialist in agriculture and resource consulting, founded in Auckland in 1970. Since 2007, ANZDEC has provided policy frameworks and training through New Zealand-funded programs to Sri Lanka, including multi-year capacity-building initiatives aimed at extension officers to foster the growth and development of the Dairy Industry in Sri Lanka. In summary, ANZDEC’s recommendations are central to the future of the Dairy Industry in Sri Lanka. Below is a refined summary of recommendations and findings from their sector assessment and strategic action plan for Sri Lanka’s dairy industry:

A. Support Commercial Dairy Clusters

* Promote private investment in large-scale, commercially viable dairy farms.

* Integrate these clusters with smallholder farmers to enhance productivity and income.

* Public–Private Partnerships (PPP) involving these clusters and smallholder farms aim to integrate them into formal value chains.

B. Market-Driven Pricing

* Permit domestic milk prices to be determined by market dynamics instead of regulated subsidies.

* Ensure pricing covers production costs to incentivize farmers.

C. Upgrade Local Herds

* Improve native cattle genetics via structured breeding programs.

* Concentrate on animals that are suited to the Sri Lankan climate and its production systems.

D. Overhaul Public Agencies

* Implement a substantial reform of the Ministry of Livestock, the Department of Livestock, MILCO, and NLDB (this concerns the President as well)

* Optimize operations, boost efficiency, eliminate redundancies, and strengthen accountability.

E. Develop Industry Standards

* Establish clear quality standards for commercially collected milk.

* Launch a nationwide promotional campaign to boost demand for fresh liquid milk.

Accordingly, expand Medium-Scale Private Production to support the growth of medium- and large-scale private-sector dairy farms as the backbone of cluster agriculture by providing support services such as improved access to credit, extension services, and marketing assistance for smallholders transitioning to commercial viability. In short, the strategic insights from ANZDEC assert that (a) a paradigm shift is necessary to move away from fragmented, subsidy-dependent smallholder systems toward market-led clusters anchored by private investment, and (b) emphasizes public–private integration, with clusters functioning as innovation hubs that stimulate improvements in smallholder productivity, supply chain development, and sector cohesion. It is important to recognize that ANZDEC’s recommendations can be tailored into an actionable roadmap for Sri Lanka, complete with timelines, responsible entities, and estimated budgets, which should be considered by the relevant authorities in Sri Lanka.

iii. Quality Standards & Cold-Chain Infrastructure

* Roll out national standards for milk hygiene and safety aligned with international benchmarks, enforced by the regulatory authority.

* Expand cold-chain capacity by establishing chilling centers and insulated milk collection routes through MILCO’s Dairy Development division.

iv. Extension Services and Capacity Building

Enhance training programs for farmers, veterinarians, and field officers as part of USDA/IESC’s Market-Oriented Dairy Project, along with climate-smart dairy practices following FAO/IESC guidelines. Broaden artificial insemination, breeding support, and fodder development through partnerships with NLDB/Ministry.

v. Financial Instruments

* Reintroduce or expand low-interest loan schemes to support smallholder farmers (e.g., via ALDL/Agro-Livestock Development Loan Scheme)

* Enhance and broaden the MILCO Farmer Social Security Fund to promote farmer welfare and bolster social safety nets.

Challenges in Policy Implementation

I have clearly explained the policy framework needed to make the Dairy Industry self-sufficient under five (5) headings. However, equally important are the five (5) policy implementation challenges that I summarize below.

First is Governance & Corruption. Historical irregularities in NLDB and MILCO, such as missing reports, procurement failures, and livestock deaths due to mismanagement, significantly undermine the credibility of the reform. To illustrate this, the following examples are essential: Import Fraud of Dairy Cattle (2012–2018). Sri Lanka imported 5,000 high-yield heifers from Australia’s Wellard Rural Exports between 2012 and 2015, at a cost of approximately US $37.3 million. Subsequently, in 2017–2018, another 20,000 cows were contracted under a US$ 237 million Rabobank loan, with US$ 23.7 million allocated to import the first 5,000. Of the initial batch, only around 300 cows survived, resulting in a mortality rate of 90–99%, with some falling ill or aborting. Second is Causes & Malpractice. Procurement was non-transparent, with advance payments (US$ 11.9 million) made without parliamentary approval, sometimes just before officials retired. The cows were ill-suited for Sri Lanka’s climate, leading to infestations (e.g., Bovine Viral Diarrhea, liver fluke), low fertility, illness, stillbirths, and deaths. Additionally, a breakdown in quarantine procedures allowed animals to be released to farms before the end of the 30-day quarantine period. Third are audits and investigations. The Auditor General certified the scheme as a “massive fraud”; over 3,991 of the 4,495 imported cows died under the NLDB’s oversight. Complaints to the Presidential Commission of Inquiry highlighted that the distribution of 3,030 sub-par cows in 2017 had alarming disease rates. Veterinary reports confirmed BVD and Fasciola infections, warning that these issues were not being addressed. Fourth, there was an impact on Farmers. Many farmers became heavily indebted, losing their livelihoods after taking loans for these cattle, which they were assured would produce 20 L/day but instead either died or yielded significantly less. Some farms have been devastated, with reports of farmer suicides and mental distress. One farmer described it as a “cemetery, not a farm,” after suffering massive livestock losses. Finally, there is a public and political response. Legal action has been initiated—most notably, a US$ 11.9 million fraud case involving former MPs and public officials is being pursued. Indeed, calls for accountability remain loud, but prosecutions have been slow or non-existent. This is one of the main tragedies of the Dairy Industry.

Lessons that can be learned from Policy Implementation Challenges

Five (5) lessons can be learned from policy implementation challenges.

First, fraud highlights a risk of foreign breed imports without proper adaptation to local climatic and management conditions. Also, procurement failures, lack of oversight, insufficient veterinary protocols, and unaccounted financial advances exemplify systemic governance breakdown. The above led to ultimate catastrophic financial, emotional, and livestock losses for farmers, further entrenching Sri Lanka’s dependency on imported milk powder. “It has turned into a total disaster… profit seems more important than animal and farmer welfare”, the media reported. It is indeed weakly defined accountability frameworks that perpetuate risk and corruption without external oversight. Second, it involves financing and resource allocation. Shifting from import-dependent to domestically rooted production requires sustained funding, not just one-off budgets, but a long-term state commitment and the efficient use of foreign grants. Auctions and credit for smallholder expansion need creditworthiness mechanisms to be effective. Third, it is smallholder capacity & land access. Small farm fragmentation, unclear land tenure, and low technical capacity pose high barriers to scaling clusters. Land ceiling laws and a lack of collateral reduce farmers’ access to finance and investment. Fourth, it is integration challenges. Linking clusters with fragmented smallholders requires organizational models, such as cooperatives and farmer-managed societies (FMS), as well as trust-building mechanisms to counter syndicates. Finally, it is infrastructure & logistics. Expanding cold chains requires significant investment and ongoing maintenance—MLCCs are limited, and logistical inefficiencies may persist without clear operational funding.

On the Way Forward – Steps & Strategic Roadmap

Gaining a solid understanding of the Dairy Industry Policy Framework and its implementation challenges necessitates identifying steps and creating a strategic roadmap for the way forward. The basis of this is provided below:

* Pilot Commercial Clusters in high-potential areas, using PPP (Public-Private-Partnership) models and linking to smallholder networks.

* Enforce Transparency by ensuring NLDB and MILCO publish audited statements and performance reviews that are open and transparent.

* Launch National Quality Campaigns, supported by extension networks and regulatory oversight.

* Leverage Partnerships with New Zealand, India (NDDB/Amul), the USA (USDA), and France (AFD) to provide technical, financial, and governance support.

* Monitor and evaluate progress through measurable Key Performance Indicators (KPIs), including fresh milk output, cluster expansion, cold-chain coverage, price stability, and farmer incomes.

Overall, while Sri Lanka has developed a comprehensive policy toolbox, the real test lies in effective public administration, sustained financing, and successful integration at the farm level. Addressing structural barriers, particularly those related to governance and land, is crucial for transforming policy into a self-sufficient dairy future. Regarding all the above, Sri Lanka can follow and learn from other countries, namely  New Zealand, India, the USA, and France.

Summary & Conclusion

The dairy industry in Sri Lanka has long faced challenges, such as low productivity, poor governance, and a heavy dependence on milk powder imports. President Anura Kumara Dissanayake’s recent initiative represents a transformative moment, aiming to restructure state-owned entities (MILCO and NLDB), incentivize private investment, and establish a self-sufficient, commercially viable dairy sector. Drawing on global best practices—particularly from New Zealand’s successful dairy model—this policy framework introduces five key instruments: institutional reform, cluster-based agriculture, enhanced quality standards, capacity building, and tailored financial mechanisms. The strategic guidance of ANZDEC further shapes these efforts by promoting market-driven pricing, herd improvement, and public–private integration.

Yet, significant implementation challenges persist: historical fraud, procurement malpractice, inadequate farmer protections, and systemic corruption have previously undermined similar efforts. Addressing governance failures, enhancing transparency, improving cold-chain logistics, and empowering smallholders are essential to achieving the President’s vision. Going forward, Sri Lanka must adopt a phased roadmap that prioritizes commercial cluster pilots, ensures accountability, and leverages international partnerships for technical and financial support.

Ultimately, success relies not only on sound policy but also on strong, ethical public administration and grassroots integration. If implemented with discipline, the President’s initiative could finally transform the dairy sector from a state of dependency on imports to one of national pride, rooted in rural empowerment, farmer resilience, and food sovereignty. In this context, Sri Lanka can draw lessons from the remarkably successful dairy industries of New Zealand, India, the USA, and France.

*The writer, among many, served as the Special Advisor to the President of Namibia from 2006 to 2012 and was a Senior Consultant with the UNDP for 20 years. He was a Senior Economist with the Central Bank of Sri Lanka (1972-1993), asoka.seneviratne@gmail.com