help to develop dairy farming in the troubled island state.

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Sri Lanka's minister of livestock development would like New Zealand's
help to develop dairy farming in the troubled island state.

R.C.M.B. Rathnayaka said providing 15,000 dairy cows and bull semen to breed herds would boost milk production.

But he said Sri Lanka would have to make aid repayments over time.

"We don't have money to pay right now", he said through a translator.

Prolonged civil war against Tamil separatists in the north and east of the country has hit both infrastructure and development, but the government wants to boost self-sufficiency in milk production from the present 20 per cent to 50 per cent over the next five years.

New Zealand provides most of the imported milkpowder sold in the $591 million local dairy sector.

Fonterra Brands Lanka has a market share of over 53 per cent of the total local dairy market, but much of that is based on the 39,000 tonnes of New Zealand milkpowder sold annually.

Mr Rathnayaka was speaking after opening an expanded yoghurt plant at Fonterra's site at Biygama, 35km west of the Colombo city centre which will nearly double the 5200 tonnes of yoghurts and curds the company makes from local milk.

Fonterra has concentrated its Sri Lankan operations from three sites to two production plants at Biygama, where it also packages the New Zealand milkpowders.

It is already the nation's third largest collector of fresh milk, and has started a campaign to boost production, which included giving farmers access to finance and genetics of Australian bulls suited to producing cows for a hot climate.

But Mr Rathnayaka also suggested after the opening ceremony that when the nation's civil war against Tamil rebels ends the farmer-owned cooperative might be persuaded to open a new dairy factory in the east of the country, about 250km from Colombo. The government is claiming to have over-run the last Tamil Tiger stronghold in the north.

"The east is clear" he assured New Zealand reporters, Mr Rathnayaka, who visited New Zealand three years ago, said he was also interested in the ways that dairy farmers were motivated to boost their production and how their dairy industry worked.

He was particularly interested in finding ways to encourage cooperative behaviour among 200,000 individual farmers and to improve pastures in a country where the average farmer has only two or three cows, and very fragmented landholdings.

He said he had been talking to investors from Korea about the potential for investment in agriculture in the north and the east of the country.

Agriculture in these areas has been disrupted by fighting, landmines, and displaced civilian populations.

Trade Minister Bandula Gunawardena told about 600 guests at the factory opening that he struggled to balance the need to underpin local dairy production with the need to keep price-increases paid by consumers to a minimum.

Price increases of 68 per cent over the past 18 months cut milkpowder consumption by 20 per cent - though Fonterra sales have clawed back about a third of that lost ground - and the government has boosted its import duties on milkpowder.

(The writer travelled to and is hosted in Sri Lanka with the assistance of Fonterra)

- NZPA