Sri Lanka’s palm oil based industry, once a promising foreign exchange earner under the Indo-Sri Lanka Free Trade Agreement (ISFTA), continues to suffer heavy losses due to lingering policy confusion stemming from the crude palm oil (CPO) imports ban imposed by the Gotabaya Rajapaksa regime in 2021–2022.
At the heart of the issue is the continued restriction on crude palm oil imports, which has disrupted the operations of a BOI-approved companies that manufactures and exports hydrogenated palm oil, bakery shortening, margarine, and specialty fats.
Sri Lanka is to incur a potential loss of around US$ 40 million due to the ban on the importation of crude palm oil (CPO), which is used in the production of bakery fats and margarine for export mainly to Indian market, companies operating under the Board of Investment reiterated.
The importation of crude palm oil (CPO) was banned during the 2021/2022 period under a policy decision taken by the administration of President Gotabaya Rajapaksa . The related gazette notification also restricted the issuance of import and export licenses for the commodity.
Additionally, the importation of palm-related raw materials such as crude palm olein (CPOL), palm stearin, and crude palm kernel oil has been brought under a licensing system.
Companies operating under the BOI, which manufacture goods for export to India, are now required to obtain special bulk shipment import licenses for their raw materials. These companies have described this as a highly unfortunate situation.
Sri Lanka enjoys a 27 percent cost advantage compared to other countries when exporting bakery fats and hydrogenated fats (vanaspati ghee) to India under the Indo-Sri Lanka Bilateral Trade Agreement.
Although palm oil imports were banned in 2022, the recent reduction of import tariffs in India over the past quarter presented a major opportunity for Sri Lankan companies. However, with India increasing its import tariffs by 32 percent from April 2025, the competitive edge for Sri Lankan products has further improved.
The Indian government has allocated a quota of 250,000 metric tons to Sri Lanka, under which the Sri Lankan companies estimate they need to import at least 6,000 metric tons of palm oil monthly to meet production targets.
Unfortunately, even BOI-registered companies are barred from importing crude palm oil due to the standing gazette notification.
Amid Sri Lanka’s ongoing severe foreign exchange crisis, the government has yet to implement any positive or effective measures to facilitate the importation of essential raw materials without disruptions.
Despite the BOI granting approvals for import licenses, companies have been forced to turn away already imported palm oil shipments at the port, unable to offload them due to the ban
Manufacturers have also pointed out to the government that without this critical raw material, their overall production volume of value-added goods could drop by 25 percent, while the value of primary products relying on the banned raw material may decline by as much as 75 percent.
They claim that there is a complete lack of awareness or understanding of this issue among present government officials. The licensing requirement, introduced in April 2021 under Gazette No. 2222/31, effectively blocked the import of crude palm olein into the country.
Meanwhile, a value-added tax (VAT) of 18% and a social security levy (SSCL) of 2.5% were imposed on locally refined oils from January 2024 and October 2022, respectively.
These changes have paralyzed Sri Lanka’s domestic refining sector. The once thriving local industry is now at a standstill due to price distortions that make imported finished oils cheaper than domestically refined alternatives.
