Basil promotes mother of all cow deals

Milking the country dry Chinthana style

The government, in the latest of the Chinthana tender benders is moving to accept a Rs. 3 billion offer from an Australian company to import 15,000 cattle heads and upgrade the farming infrastructure of the National Livestock Development Board (NLDB) despite the Board itself advising to the contrary.

This saga began with the approval of Cabinet Paper No. 07/1043/352/012 submitted by Livestock Minister C.B. Ratnayake on June 20, 2007. In the paper, the Minister states "there is a big interest shown by many institutions in public as well as private sectors to invest on importation of high quality dairy animals."

A few lines later on Minister Ratnayake refers to a decision "taken at a meeting held recently with the (emphasis ours) Senior Advisor to the President to import 15,000 upgraded animals by the NLDB, from suitable countries, in stages."

In fact the Cabinet Paper comes in the wake of a committee report which evaluated the option of importing just 1,500 cattle heads, one tenth of the 15,000 later agreed by cabinet, submitted by the NLDB management to Board Chairman Pathiraja on May 21, 2007.

That report, signed by no less than nine top officials, states that "the Board is in the present financial mess due to the last importation of cattle in 1993" and that "all past cattle imports were on grants to the NLDB by foreign governments and the ADB."

The committee surmised that it would be suicidal for the NLDB to take on a financial commitment and concluded that "this cattle importation is not feasible and it will only increase the financial burden on the NLDB, which will result in financial consequences that the Board will never be able to recover" from.

It is despite this stern warning that the cabinet decided to go ahead with importing 10 times as many cows as the NLDB was terrified to take on.

Thus the gears were set in motion.

The amusing thing about this meeting with the Senior Presidential Advisor Basil Rajapakse where it was decided to dump 15,000 cows on the NLDB was that the NLDB was not represented at this meeting.

Even though the Cabinet Paper suggested that "the total expenses involved in the initial batch will be in the range of Rs. 250 to 300 million," the proposals now under consideration by the Cabinet Appointed Negotiating Committee (CANC) for this project are in the range of Rs. 1 billion.

Out of the four shortlisted bids, the CIF (Cost, Insurance and freight) value of the cows is between US$ 2,100 and US $ 3,413, far higher than the values estimated by Ratnayake to cabinet. The Cabinet Paper reads "The CIF value of an imported animal is expected to be in the range of US$ 1,000 to 1,500." Clearly the Minister was well off the mark.

The bids now shortlisted by the CANC are all from Australian companies. They are B2B International, China Cattle, Bonegilla and Wellard Rural. There are several telling signs according to Livestock Ministry inside sources of a ‘deal already done’ on senior advice.

The first sign comes from the history of the NLDB. The company has not received any Treasury assistance for its activities in over a decade, despite subsidising livestock and equipment sales to both the public and government agencies. For some years, the Board has run at a loss, and even in the best of years they have barely broken even.

Still some time back they were to ‘gift’ a cow costing some Rs. 85,000 to Aviation Minister Chamal Rajapakse for his ancestral home in Hambantota. The NLDB books still show the payment as outstanding.

The NLDB management has consistently proposed to the Treasury that they be given some sort of funding to overhaul their infrastructure. Last year the Board submitted a proposal to invest in their pastures, sheds, vehicles, milking and other machinery to help improve cattle productivity at a cost under Rs. 95 million — and this proposal was ignored.

Instead the government, less than a year later, sees it fit to import 15,000 cows from overseas at the cost of billions of rupees.

Thus they are now wary of plans by the government to land on them several billion rupees worth of cows and ‘infrastructure development.’ Despite the cabinet approval being granted to import 15,000 cows over a period of five years, the bids now being considered are for the importation, maintenance and acclimatisation of fewer than 5,000 animals, and these bids are in the range of Rs. 3 billion.

Should cabinet approval be extended to import the full 15,000 cows proposed, it is reasonable to estimate that the bill will run into the region of a colossal Rs. 9 billion. The NLDB is absolutely bamboozled as to how the Rajapakse government, which never saw it fit to invest one cent in the NLDB — despite promises in the Mahinda Chinthana to provide a glass of milk to children between two and five years of age — has done a U-turn and decided to pump nearly Rs. 10 billion into the relatively fledgling state enterprise.

The Evaluation Report on EoIs on the four shortlisted bids, in the possession of this newspaper, indicates that three out of the four finally selected bidders have visited the NLDB’s dairy farms. However, an NLDB official who looks over management of these farms stated that only one of these bidders seriously inspected the farms. "The rest were not interested, and bid for the sake of bidding. They knew what was going on," he said, implying that the entire exercise was engineered to tailor one bidder, Wellard Rural.

Wellard’s bid came to US$27,800,000 for the renovation of six farms, and the importation of 3,750 cattle. Should their bid be selected, and the government elects to obtain all 15,000 cows in their plan under similar terms, the total cost would be over Rs. 12 billion — well and truly milking the country dry.

There is little short or medium term economic support that can come from this project. The entirety of it is focused on spending in the range of Rs. 10 billion to accommodate 15,000 cows for the government owned NLDB, but the total dairy cattle population of Sri Lanka is just under a million. So the government would be spending a thundering amount of money to increase the cattle population by 1.5%.

Whether even this surreal goal can be achieved is a question being asked by NLDB farm officials. NLDB farms as of now are filled to capacity. Approximately two of their farms will need to be cleared out to accommodate the first 1,500 foreign animals, and these farms already have 1,500 dairy cows in them.

NLDB officials are wary of the fate of their existing animals, as they would be difficult to sell to the public in order to accommodate the new animals. "Most of them will end up with the butcher, at least a thousand of them," said one junior NLDB farm supervisor in the know.

Thus with the current NLDB cattle population slated to turn into hamburgers and sausages in order to accommodate the ‘foreigners,’ there is no prospect of this deal increasing Sri Lanka’s cattle population. If at all were there to be any gain, it will be in the daily yield of milk produced by these new cows.

The breeds of cattle proposed for import are Jerseys, Friesians and cross bred animals from these two types. Both of these varieties are temperate animals, and would not be able to survive in Sri Lanka’s lowlands.

"Even Kandy will be too warm for these animals," said a NLDB farm official. "They would have to be kept at higher altitudes in the Nuwara Eliya area. This entire project is restricted to up-country farms because of this," he said.

There is doubt that much of a difference can be made even in the milk yield. The NLDB has previously imported Australian Friesians expecting them to produce up to 30 litres per day. But their best efforts only yielded 12 litres per day. Similar experiences may be had if cattle are blindly imported again.

The government has not required bidders to experiment with animals of certain breeds in Sri Lanka on a small scale, by testing to see if improved yields can actually be made a reality. This is yet another step that has been proposed by the NLDB that has been blindly ignored by the Livestock Ministry.

The NLDB management is also wary of the Wellard offer as they feel that even though the fixed capital expenditure for improving farm infrastructure would be provided by the Treasury, they would then be left in the lurch to maintain the costly temperate cows.

"What they are doing is like bringing Madonna into a two star hotel. They are promising to pay for making the hotel five stars, and after that they will leave the daily bills in our hands to pay," said an amused senior NLDB assistant manager.

His mood then curdled. "We already have an 80 million rupee overdraft, and an 80 million rupee long term loan. In all, we are barely making ends meet. There is no way we can afford to buy even the cattle feed for these new animals on our tab. It will cost five times what we pay today," he explained. A group of NLDB officials told The Sunday Leader that they would be more than happy if they were given all the infrastructure development assistance from one of these big bidders, sans the new animals.

"Just doing up our existing farms will enable us to seriously increase our yield and performance," one of them said. "This would be good for the NLDB, but not for the country. Is it worth billions of rupees to do up a few farms and trigger a minor increase in milk productivity?" questioned another concerned official.

"If the government really was trying to help the NLDB or the dairy sector, they would hire professional consultants in collaboration with the NLDB and discuss openly and transparently how money could be spent (and raised) to make our operations more efficient," added the official.

The official was not aware of the cabinet memorandum in our possession (see box) explaining how the consultations were skipped and a decision taken with the Senior Presidential Advisor that the solution to the country’s cattle problem was to make 15,000 immigrant cows come home.

The most conservative conclusion that can arise is that this is a clear example of splurging government money on surreal projects. The cheeky part about it is that the finance package from Wellard involves a grace period of two years. With a general election looming in 2010, the bill for this folly would have to be footed by the next government, just like the famous US$ 500 million bond issue of 2007.

The package is partly funded by the Australian Export Finance Insurance Corporation (EFIC) at an interest rate of over 7%, which is financing 76% of the project cost. Back into the fold for the remaining 24% is HSBC, who will be financing 24% or US$ 6,232,233 at 6.46% interest.

And just for the record the company does have a local agent, details of which will be made public shortly.

It would be prudent to urge all parties to this project to consider the impact of such a phenomenally expensive project, versus the actual impact it would have on the Sri Lankan dairy sector. More attention should be given to economical ways to improve the NLDB’s existing livestock milk yield and farm infrastructure. The government would be ill advised to blindly continue with this project on the basis of an eight month old cabinet note whose costing estimates were way off the mark.