Economic regulation in the milk powder market of Sri Lanka

Abstract

Introduction:

Milk powder is an essential good in the commodity basket of an average Sri Lankan household. The Sri Lankan government regulates milk powder market by imposing a maximum retail price and also by taxing the milk powder importers. The objective of these regulations in general is to ensure economic benefits of the milk powder consumers as well as to local milk powder manufacturers. The government tax imposed on the milk powder importers may protect domestic producers while earning some revenue to the government and the maximum retail price is cited as a policy to protect consumers. In this study, we examine these two policies i.e whether the tax on importers gives any protection to the local milk powder producers and whether the consumers are benefited by the imposed maximum retail price. Specifically, we attempted to examine that whether the government should impose the maximum retail price policy as well as tax on imported milk powder. Some recent studies by Bogahawatta and Herath (2006), Karunagoda et al. (2007), Weerahewa and Rajmohan (2008) have investigated different aspects of the milk powder market in Sri Lanka. However, requirement of regulating milk powder market using tax and maximum retail price has not been investigated in the literature and this study focuses on that issue.