Sri Lankan exporters of desiccated coconut said a recent government hike in edible oil import duty could put them out of business as prices of raw nuts will remain high, making their exports uncompetitive.

The government raised import duty on edible oil by changing it from a 28 percent rate to a specific levy of 40 rupees a kilo earlier this month, which would amount to an effective duty of 61.5 percent with imported oil at 65,000 rupees a metric tonne.

The government said the increase in import duty on edible oil would protect domestic oil mills hit by cheaper palm oil imports and ensure growers get better prices for raw nuts.

The move came after the price of imported edible oil fell to 65,000 rupees a tonne in November from 100,000 rupees in January 2008.

However, exporters of coconut products such as DC millers said high prices for raw nuts would mean they would become uncompetitive against exports from other coconut growing countries.

"Next year our mills will come to a grinding halt," said DC Millers Association president Felix Fernandopulle.

"All commodities have dropped in price, so coconut alone can’t maintain a higher price."

Fernandopulle said Sri Lanka was known as a country where coconut consumption was high, leaving not enough nuts available to feed export industries like DC mills.

"We eat coconut for curries and also use coconut oil for frying, so we need 1,900 million nuts for consumption alone. About 1,300 million nuts are used by the coconut oil mills, leaving only 600 million nuts for other export industries."

Sri Lanka’s annual coconut production is around 2,800 million nuts.

Fernandopulle said the DC industry employs over 10,000 people who were already in difficulty as mills had slowed down operations.

Previously, the government had allowed edible oil imports for domestic consumption and ensure enough raw material was available for industries to encourage exports like DC.

"Now the government has increased the price of imported edible oil by imposing a huge increase in duty," Fernandopulle said.

"What was 15 percent has now gone up to 61 percent. With value added tax and other surcharges the actual increase is even higher."

This makes Sri Lankan DC uncompetitive against those from other countries like Indonesia which has also devalued its currency, he said.

Sri Lanka’s exporters of value added coconut products had been asking the authorities to free edible oil imports, so that profits from oil milling would fall, freeing more nuts for other industries.

Sri Lanka’s coconut milk powder, coconut cream and desiccated coconut producers have found their cost of production increasing, but have been finding it difficult to compete in the international market.