• Lanka Sugar Company facing storage capacity issues, mounting financial pressure
• 17,000 MT of locally produced brown sugar stuck at Lanka Sugar Company warehouses

Sri Lanka’s sugar industry is on the brink of collapse as thousands of metric tonnes of locally produced brown sugar remain stuck in storage, unable to reach the market due to a failed Government-appointed distribution system. 

With the new harvesting season underway, the Lanka Sugar Company faces a critical shortage of storage space and mounting financial pressures, including delayed salaries for employees and unpaid dues to nearly 15,000 farmers. 

Amid rising sugar imports and falling domestic prices, the Government-owned company is struggling to stay afloat under the weight of high taxes and operational inefficiencies, raising urgent questions about the future of Sri Lanka’s domestic sugar production and the livelihoods it supports.

Operational challenges and financial strain 

As reliably learnt by The Sunday Morning, approximately 17,000 MT of pure locally produced brown sugar remain stranded in Lanka Sugar Company warehouses across the country, unable to reach the market. 

This backlog has resulted from the Government’s recent decision to overhaul the previous distribution system, which relied on large-scale direct buyers, and replace it with appointed distributors who, unfortunately, have failed to meet their sales targets over the past several months.

Consequently, Lanka Sugar’s management is now grappling with a critical shortage of storage facilities, just as the new harvesting season has already begun. The company anticipates an influx of around 350,000 MT of sugar stock in the coming months, further exacerbating the storage crisis.

Adding to these operational challenges, the company is facing serious financial strain, struggling to pay salaries to nearly all of its employees and pending payments to approximately 15,000 farmers who are still awaiting compensation for their recent harvests.

When The Sunday Morning contacted the Lanka Sugar Company for comment, a senior official, who requested anonymity due to the sensitive nature of the issue and pressure from Government authorities, revealed that the company currently spent close to Rs. 1 billion annually on Corporate Social Responsibility (CSR) initiatives. These programmes include measures to protect farmers and their crops from elephant attacks and other threats.

“Despite these significant expenditures, we are still subjected to a Government-imposed Value-Added Tax (VAT) of Rs. 42 per kilogramme,” the official explained. “If this VAT were removed, we could sell our products at around Rs. 250 per kilo. Even at that price, we would incur losses, but at least we would generate enough revenue to cover salaries and payments to farmers.”

Growth in imports 

Lanka Sugar Company Ltd. (LSCL) is a fully Government-owned enterprise under the Ministry of Plantation. In 2011, the Government took over the Pelwatte and Sevanagala sugar factories under the Revival of Underperforming Enterprises or Underutilised Assets Act, following a Cabinet-appointed subcommittee’s review of their economic performance and industrial value. 

After an in-depth study of these factories and 34 other institutions, the committee recommended Government takeover. A competent authority was appointed to manage the transition, which lasted until August 2012 when LSCL was officially incorporated. The company is mandated to operate profitably and be self-funded, aiming to reduce Sri Lanka’s foreign exchange expenditure on imported sugar and ethanol.

The latest figures from the Central Bank of Sri Lanka (CBSL) reveal a notable increase in sugar imports, reflecting shifts in domestic market dynamics and consumer pricing. 

In February of this year, sugar imports surged to 12,740 MT, up from 9,831 MT in the same month of 2024. This represents a sharp rise in import volumes, contributing to a year-on-year increase of 31.3% for the combined January-February period; total imports climbed from 19,478 MT in 2024 to 25,568 MT in 2025.

This growth in imports comes amid falling retail sugar prices. In March 2024, the price of white sugar was recorded at Rs. 284.21 per kilo. By March of this year, the price had dropped substantially to Rs. 235 per kilo, a decline of nearly 17%. 

More recent data from the CBSL’s daily price report as of Wednesday (21) shows retail prices at Rs. 230 per kilo in Narahenpita, indicating a further downward trend.

For consumers, the reduced prices may be a welcome relief amid rising living costs. However, for the domestic sugar industry, the situation points to an urgent need for policy interventions to balance import levels and support local production, ensuring the industry’s long-term viability.

Domestic production shortfall 

According to statistics from the Lanka Sugar Company, sugarcane cultivation in Sri Lanka covered a total area of 26,866 hectares in 2024, reflecting ongoing efforts to boost domestic production despite fluctuating import levels. The average yield per hectare was 62.4 tonnes, indicating moderate productivity when compared to regional standards. 

Over the course of the year, approximately 1,247,551 tonnes of sugarcane were crushed, significantly contributing to local sugar manufacturing. The industry maintained an average sugar recovery rate of 9.2%, consistent with historical performance, though experts note there is potential for improvement through enhanced agronomic practices and upgrades in mill efficiency.

Sri Lanka’s total sugar requirement in 2024 was estimated at 663,678 MT, but local production accounted for only 80,678 MT, underscoring the country’s heavy reliance on imports to meet domestic demand. To fill this gap, the country imported around 583,000 MT of sugar throughout the year. 

Notably, the average import price (Cost, Insurance, and Freight – CIF) per metric tonne fell significantly from Rs. 104,645 in December 2023 to Rs. 82,254 by December 2024, reducing the overall import bill, which was valued at nearly Rs. 48 billion for the year.

In addition to sugar, Sri Lanka produced 12.9 million litres of ethanol in 2024, a key output of the sugar and distillery industries, contributing to the country’s energy needs.

The annual sugar requirement for 2023 was estimated at 661,183 MT, with 90% of that amount imported, resulting in a staggering foreign exchange expenditure of around Rs. 127 billion.