Confectioners fear losing competitiveness as manufacturing costs escalate

Sri Lanka’s confectionery manufacturers fear the risk of waning competitiveness of their exports as domestic manufacturing costs have escalated to unsustainably higher levels due to high import levies, energy costs and labour shortage. 

Industry exports are now being sustained, “purely based on the quality,” said Ceylon Biscuits Limited Deputy Chairman Ramya Wickramasingha – country’s largest confectionary exporter.
The warning from the industry came at a time when the country’s export earnings have been on the decline for the last 16 consecutive months. 

This is amid the industry facing numerous challenges at the export destinations due to their stiff regulations and 
non-tariff barriers. 

Sri Lanka’s confectioners exports to over 55 countries and earned little above US $ 2 million a month. But the industry is 100 percent reliant on imports for their ingredients. 
“We have to import almost 100 percent of our ingredients and we have to pay a hefty duty. Our energy costs are much higher, hence we cannot compete. Therefore the local manufacturers will have to close down,” Wickramasingha said in an earlier occasion. 
The apex body representing the confectionery manufacturers, Lanka Confectionery Manufacturers Association (LCMA) represents over 90 percent of confectionery manufactured in the country. 
The industry provides 50, 000 direct employment opportunities and at least 500, 000 indirect employment opportunities.
The industry faces stiff competition in the local market too because of unregulated confectioneries imported at a fraction of the prices or even below the cost as the country lacks the most important anti-dumping regulations.
Early this week, Mirror Business exclusively reported that powerful business figures with close links to the incumbent regime blocking the passage of the law. 
Duty charged for imported biscuit is 35 percent but some of the ingredients used in the manufacturing of confectioneries by the local manufacturers are taxed at 240 percent. 
For instance, the total import levies slapped on whey powder is as high as 240 percent - higher than the Cost, Insurance and Freight (CIF) price while the special commodity levy charged on the confectionery fat is Rs.135 per kilogram. 
“In addition, confectionary fats are subject to Ports Authority Levy (PAL) of 7.5 percent, Nation Building Tax (NBT) and Value Added Tax (VAT),” said Shanasz Hakeem, the Chairperson of the LCMA. 
Confectionary fats accounts for over 40 percent of the manufacturing cost of a confectioner. 
Sri Lanka each month imports 800 metric tons of fat at a cost of Rs. 300 million of which over 75 percent is used by the industry. 
“Protecting the quality of the industry matters most. If we go for all these substitutes and all those low quality products, the industry quality as a whole will come down. Then for us to compete in the global market will be impossible because no one can exports products unless the local market benefits,” said Ceylon Biscuits Limited CEO Samitha Perera.  

In a bid to make the country’s exports competitive, the Central Bank keeps exchange rate weak but sustainability of such a strategy without creating a strong manufacturing base targeted at export markets remains skeptical.  

When exporting, the country’s currency appreciates against the importing currency. For an example, goods become expensive in import currency as the importer has to pay more thereby losing the exporter’s competitiveness.