MILCO profit in 2025 reached a record Rs. 1.49 billion after years of debt, falling milk collection and controversy over major dairy projects.
COLOMBO — State-owned dairy producer MILCO has reported a record net profit of Rs. 1.49 billion for 2025, marking a sharp financial turnaround after years of debt, operational decline and serious concerns raised by government auditors over procurement, unfinished projects and management weaknesses.
Agriculture and Livestock Deputy Minister Namal Karunaratne told Parliament that the company had also settled Rs. 3.5 billion in bank liabilities and Rs. 1.7 billion in outstanding payments owed to milk suppliers.
The recovery represents a striking change for an enterprise that, only a few years earlier, had seen milk collection and production fall sharply while questions persisted over internal controls and large public investments.
MILCO’s turnaround does not, by itself, resolve the controversies that preceded it. But it provides an important test of whether a strategically important State enterprise can be restored through stronger management and financial discipline rather than disposal or privatisation.
Milk Collection and Market Share Had Fallen Sharply
The extent of MILCO’s earlier deterioration is reflected in official audit findings.
Its processing capacity stood at around 165,000 litres of liquid milk a day, while production had fallen to roughly 55,000 litres during the period of serious operational weakness.
The Auditor General also reported that MILCO’s share of the country’s liquid milk production had steadily declined, reaching 7.9 per cent in 2023.
Financial losses were accompanied by weaknesses in internal controls, delayed projects and questions over management decisions.
These problems reduced MILCO’s ability to support local dairy farmers at a time when Sri Lanka was spending substantial foreign exchange on imported milk products.
Badalgama Factory Became a Costly Unfinished Asset
Among the clearest examples of the company’s difficulties was the Badalgama Milk Processing Factory.
The contract for the project was signed in 2015 at a value of approximately Rs. 9.72 billion, equivalent at the time to €63.9 million, with completion originally expected years earlier.
Yet the factory remained incomplete and non-operational.
Even while production had not started, the site continued generating costs.
The Auditor General found that electricity expenses exceeding Rs. 12 million were incurred between February 2022 and June 2024 during a period when construction had been suspended. Security expenses of more than Rs. 200,000 a month were also being incurred.
The Government has since announced plans to restart and complete the long-delayed facility, which is expected to substantially expand MILCO’s processing capacity once operational.
Imported Cattle Project Left Another Financial Burden
Separate from MILCO’s own operational problems, Sri Lanka’s wider dairy sector was also affected by the controversial imported-cattle programme.
The Government entered into financing arrangements involving Australia’s Export Finance and Insurance Corporation and Rabobank of the Netherlands for a project intended to import 20,000 dairy cattle.
Official audit records show that 5,000 animals were imported under the first stage of the programme at a cost of approximately USD 18.4 million.
Farmers subsequently reported serious problems involving animal health, productivity and suitability for local conditions, while the programme attracted extensive scrutiny from Parliament, the Auditor General and other authorities.
Some farmers had borrowed heavily to construct specialised sheds and other infrastructure in anticipation of the imported cattle programme, leaving them exposed when the project failed to perform as expected.
USD 11.09 Million Paid for Cattle That Never Arrived
An even more serious financial issue emerged from the planned second stage.
The Auditor General found that approximately USD 11.09 million, equivalent to about Rs. 1.75 billion at the time, had been paid in advance for the importation of 15,000 additional dairy cattle.
Those animals were never delivered.
As of February 27, 2025, the audit stated that the Government had received neither the proposed animals nor any benefit from the advance payment.
The audit also noted that the advance had been paid without obtaining the required advance security under the applicable Government Procurement Guidelines.
That finding raises significant questions over how a transaction of such scale proceeded without adequate protection for public funds.
MILCO’s Financial Position Reverses
Against that background, MILCO’s 2025 performance stands out.
Karunaratne said the company recorded its highest-ever net profit of Rs. 1.49 billion and cleared financial obligations that had accumulated over previous years.
The Deputy Minister said MILCO had previously carried Rs. 3.5 billion in bank liabilities and Rs. 1.7 billion in outstanding payments to milk suppliers, with those obligations subsequently settled.
The company also recorded its highest sales turnover in 2025, according to the Government.
On December 31, MILCO paid a Rs. 75,000 performance bonus to each of its 1,228 employees and distributed Rs. 180 million in profit-sharing payments among approximately 22,000 dairy farmers.
Government officials have presented the turnaround as evidence that loss-making State enterprises can recover when financial leakages and management weaknesses are addressed.
Turnaround Does Not Erase Past Failures
Improved financial performance should not prevent scrutiny of what occurred before the recovery.
Questions surrounding unfinished projects, weak internal controls and the dairy-cattle programme remain matters of public accountability.
The State must still establish responsibility where public money was improperly spent and pursue recovery where legally possible.
Likewise, one profitable year does not by itself prove that MILCO’s problems have been permanently resolved.
A sustainable turnaround will depend on higher local milk collection, efficient factories, disciplined procurement, functioning internal audits and professional management that survives changes of government.
A Wider Test for State Enterprise Reform
MILCO’s recovery is significant because the company had previously been discussed in the context of restructuring and possible private-sector participation.
Its recent performance strengthens the argument that at least some State-owned enterprises may be capable of recovery without sale, provided their underlying problems are operational rather than structurally insoluble.
That conclusion should not be applied automatically to every public enterprise.
Each institution must be assessed on its finances, market role, governance and ability to operate without recurring taxpayer support.
For MILCO, the next test will be whether the 2025 recovery can be sustained while the Badalgama factory is completed, milk collection expands and the unresolved legacy of earlier dairy-sector failures is addressed.
If that happens, the company’s revival could become more than a single profitable year. It could offer a measurable example of how stronger governance can restore a strategically important public institution.
