For years, Sri Lanka’s state-owned dairy industry became a disturbing example of how political interference, weak oversight and alleged corruption could destroy a strategic national institution. At the centre of that collapse was MILCO Private Limited, once a major pillar of the country’s dairy economy but reduced to a fraction of its potential under previous administrations.
The scale of the deterioration was stark. MILCO’s daily liquid-milk collection capacity of around 165,000 litres fell to only 55,000 litres, while its share of the national milk market declined to 7.9 percent. Behind the decline were years of financial losses, an ineffective internal audit mechanism, controversial board payments and the abandonment of the Badalgama milk-processing project.
The Badalgama facility became a particularly glaring symbol of waste. Although non-operational, the project continued consuming public resources through security and electricity expenditure. Instead of generating value for farmers and consumers, an important state asset became a continuing financial burden.
The dairy crisis was compounded by the controversial imported-cattle programme. More than 5,000 dairy cattle were initially brought into the country under a project backed by Australia’s Export Finance Insurance Corporation and financed through a US$73.95 million commercial credit facility from Rabobank. Yet approximately 4,700 animals reportedly died, causing losses exceeding Rs.2.1 billion.
The consequences extended far beyond MILCO’s balance sheet. Small dairy farmers borrowed heavily to construct specialised cattle sheds and related infrastructure, only to face devastating losses when the imported animals failed to perform in Sri Lanka’s tropical conditions. Allegations that records included non-existent farms added another dimension to the controversy.
A subsequent forensic examination reportedly found that US$11.09 million had been advanced for another 15,000 cattle that were never procured or delivered. Such revelations raise fundamental questions about how such a major sovereign-backed transaction escaped effective Cabinet, legal and financial scrutiny.
Hitherto the most significant development now is the attempted reversal under the National People’s Power administration. By late 2025, MILCO had reportedly transformed its financial position, recording a record net profit of Rs.1.49 billion, settling Rs.3.5 billion in bank loans and clearing Rs.1.7 billion owed to local suppliers.
That turnaround is important because it demonstrates that the collapse of a state enterprise is not necessarily irreversible. Proper financial discipline, professional management and stronger accountability can restore institutions that were previously considered candidates for privatisation or abandonment.
The Government is also pursuing the international dimension of the cattle scandal, examining whether Rabobank’s alleged anti-money-laundering failures can strengthen Sri Lanka’s case concerning the controversial debt. Meanwhile, efforts are continuing to recover assets from individuals allegedly responsible and address unpaid insurance claims.
The lesson is larger than MILCO. If the NPP Government can permanently institutionalise transparent procurement, functioning internal audits, professional boards and accountability, MILCO could become evidence that reform not asset sales can rescue strategic state enterprises.