The Sri Lankan dairy industry is at a crossroads. While domestic milk production inches forward, the farmers and milk suppliers who form the backbone of the sector are increasingly squeezed by rising costs, stagnant returns, and structural gaps. An investigative look at the latest data shows that the industry’s fragile progress hides deep distress among those who toil to keep milk on the consumer’s table.
At the recent Fifth Annual General Meeting of the All Island Dairy Association (AIDA), held at the Ceylon Chamber of Commerce, the stark contrasts in the industry were on full display.
AIDA President Asoka Bandara welcomed the government’s decision to remove Value Added Tax (VAT) on fresh milk in the latest budgetbut cautioned that relief for input costs and infrastructure support remain overdue.
The association said it represents dairy collectors and processors, large and medium farms, service providers across the value chain, and importers of equipment and input materials.
The scale of the struggle becomes evident in national production statistics. According to the Department of Census and Statistics, combined cow and buffalo milk production in 2024 was approximately 521.7 million litres, up from around 504 million litres in 2023, yet still far below demand.
Industry sources estimate domestic production still covers only 30–40 percent of national dairy demand. That gap is largely met by powdered milk imports, costing the country billions of rupees annually.
Behind the national aggregates, however, the human story is harsher. Over 105,000 smallholder farmers rear milking cows (under 10 animals), while fewer than 3,000 operate mid-scale (10–50 animals) and just over 2,000 are large farms.
These small farmers dominate the supply chain but often struggle with low yields, limited access to quality feed, and poor bargaining power. The average farmer’s income from milk is frequently eroded by volatile input prices and transport, especially in remote rural regions.
Despite AIDA collecting roughly 65 percent of the country’s formally reported milk, much of that comes from rural smallholders.
Bandara highlighted challenges including disproportionate taxation on investments in larger farms, the need to upgrade small farms toward commercial viability, and chronic shortages of high-quality fodder and concentrate inputs. He also emphasized the necessity of integrated artificial insemination and stronger progeny for Sri Lanka’s low-yield cattle.
Minister of Agriculture K.D. Lalkantha voiced alignment with AIDA’s proposals, promising to explore state land allocation for fodder cultivation and strengthen interventions via the National Livestock Development Board (NLDB). Yet, even with these commitments, the AIDA farms currently meet only 40 percent of fresh milk requirement, according to officials at the AGM.
The revenue side tells a mixed story. One of Sri Lanka’s most visible dairy businesses, Lanka Milk Foods (CWE) PLC, reported revenues of around LKR 9.77 billion in 2022, and net income of LKR 1.06 billion in the same year.
However, because the data is lagged, it offers only a partial snapshot and does not reflect the pressure from rising feed and fuel costs since 2023–25. Meanwhile, the dairy sector has seen only incremental growth in production, constrained by limited structural reforms and underinvestment.
The paradox is clear: Sri Lanka produces more milk each year yet continues to rely heavily on imports; some businesses log modest profit, while many suppliers subsist. The dependency on powdered imports—estimated at a cost of about LKR 63 billion annually—underscores the unfulfilled potential.
Even as AIDA readies an action plan ahead of the national budget, and top officials including NLDB leadership joined the AGM, the question remains whether policy will shift decisively to alleviate the plight of milk suppliers.
Unless the power to invest in mid-sized farms, feed production, animal breeding, and value-chain subsidies is extended to the smallest producers, the industry’s growth may continue to bypass those who are most essential and most vulnerable.
