By: Staff Writer
May 26, Colombo (LNW): A widening regulatory loophole linked to some of the Board of Investment (BOI) companies has sparked growing concern within Sri Lanka’s coconut and edible oil industries, with local producers warning that unrestricted palm oil imports are destabilising the market and threatening rural livelihoods.
Industry representatives claim that crude palm olein imports, many of which are entering the country under export-oriented BOI concessions, are increasingly being diverted into the local market while bypassing standard regulatory oversight. The result, they say, is an uneven playing field that heavily disadvantages domestic coconut oil manufacturers and farmers.
Sri Lanka’s coconut sector supports thousands of smallholder farmers, mill owners, transporters and traders across rural districts. However, over the past several years, the industry has struggled with fluctuating coconut prices, rising production costs, climate-related disruptions and increasing competition from imported edible oils.
To address concerns over unrestricted imports, the government introduced Gazette Notification No. 2222/31 in April 2021, creating a stricter licensing system for edible oil imports. Under the regulations, importers were required to undergo vetting procedures involving the Ministry of Industries and the Coconut Development Authority (CDA) while also paying a levy to the Department of Import and Export Control.
Despite these controls, officials acknowledge that BOI-registered firms continue to enjoy exemptions that effectively place them outside the standard approval process. Many of these companies were initially established under agreements such as the Indo-Sri Lanka Free Trade Agreement to produce export commodities like vanaspati. Yet critics allege that significant volumes of imported palm oil are now finding their way into Sri Lanka’s retail and wholesale markets.
A senior industry ministry official revealed that BOI-backed firms receive direct quota allocations permitting thousands of metric tons of edible oil imports each month. Because these approvals are accepted directly by the Import and Export Controller, shipments can bypass additional scrutiny from the CDA and the Ministry of Industries.
The imported oils are stored in bonded facilities operated through the Sri Lanka Ports Authority, enabling companies to defer customs duties and taxes until products are released into the domestic market. Analysts say this system gives large importers a major cash-flow advantage compared to local manufacturers who must pay taxes upfront before production and distribution.
Local coconut oil producers argue that the price difference created by subsidised imported palm oil has severely disrupted the domestic edible oil market. Consumers facing rising living costs often turn to cheaper alternatives, reducing demand for locally processed coconut oil. As market prices fall, many mills have reportedly scaled back production while coconut farmers face declining incomes.
Industry associations have also raised concerns about the concentration of storage infrastructure at the port. They claim large-scale importers occupy substantial portions of the common-user tank facilities, restricting access for smaller importers and local businesses.
Calls are now mounting for urgent policy reforms. Farmer organisations and coconut millers are demanding that all edible oil imports intended for local consumption receive mandatory clearance from the CDA and Ministry of Industries, irrespective of BOI status. Officials are also evaluating proposals for additional surcharges on bonded oil releases to neutralise what domestic producers describe as an unfair market advantage.
As pressure grows on policymakers, the future of Sri Lanka’s coconut industry may depend on whether regulators can close the loopholes that industry stakeholders say are undermining one of the country’s most important agricultural sectors.