By W A Wijewardena –
Foodflation raising its ugly head
As at end-January 2020, both price indices that record Sri Lanka’s consumer price levels have shown a sudden upsurge mainly due to increases in food items, a situation known as ‘foodflation’. The Colombo Consumers’ Price Index or CCPI that covers only the consumers in the Colombo District accelerated 6.2% by end-February compared to the price levels that had prevailed a year ago. While non-food items had recorded an increase of only 2.9%, the food items had increased by 14.7%, up from 6.3% two months ago.
Following the same trend, Sri Lanka’s National Consumers’ Price Index or NCPI that covers the whole island too recorded an increase of 7.6% by end-January, compared to 1.2% a year ago. Of this, the non-food items rose only by 3%, while food items steeped by 13.7%, up from again 8.6% a month ago. According to NCPI, the main culprits have been vegetables, coconuts, red onions and fresh fish which had recorded a sharp increase compared to their levels in December 2019.
In Colombo District, in addition to these four culprits, the prices of three popular varieties of rice too had recorded sharp increases compared to the prices that had prevailed a year ago. Against this foodflation, the consolation for consumers had been the slower rise in the non-food items that had been included in the indices. That component in NCPI constitutes 56% of a consumer’s budget.
This time, it isn’t a seasonal issue
Food prices are seasonal and therefore with the expected entry of the Maha crop to the market in about two months’ time, they could be expected to reverse. However, in this year, in addition to the seasonal factors, they have been adversely affected by the prolonged drought and warm weather conditions in most of the food producing areas in the country. This is also shown by the reversal, by the end of the year, of the downward trend in the producer prices which had been the salient feature till mid-2019.
According to the Producer Price Index or PPI compiled by the Department of Census and Statistics, the prices faced by the agricultural producers continued to fall till August 2019. Accordingly, the index value for this sub-category which stood at 160 in December 2018 fell to 138 by August 2019. But since, then, it took a sharp upward trend ending at 162 by December. This is a 17% increase in the agricultural producer prices in the last four months of the year.
Though we do not have the later data on producer prices, the increasing trend portends that agricultural prices will continue to be high for a few months more, despite the entry of the Maha crop to the market. This is bad news for the government and sweet-music for the opposition, since Sri Lanka’s voters are mostly driven by emotions surrounding the stomach and not by rational views that rule the head.
Suggestion to eliminate the middleman
The reaction of President Gotabaya Rajapaksa, fondly called Gota, to this unwarranted increase in food prices happens to be based on his firm belief that prices are high because of monopolistic manipulation of prices by a few wholesalers. Addressing the officials of the Ministry of Mahaweli Development and those from the Trade Ministry, he is reported to have directed them to intervene in the market and put an end to the ongoing price increases.
He has drawn their attention to the structural issues in the vegetable market in the form of vegetables being transported to specially established wholesale markets – known as special economic centres such as Dambulla – from producing areas and then being re-transported to those areas for use by consumers. In this two-way transit, according to Gota, a large quantity of vegetables gets destroyed causing vegetable prices to remain high even when the supply conditions may have improved significantly.
He has also suggested that lands belonging to the state, especially those assigned to plantation companies, should be used to cultivate vegetables thereby increasing their supply to the market. But this cannot be fulfilled before the elections and therefore, it can be considered as a medium to long-term remedy to the problem.
The charge against so-called oligopolistic paddy-millers
The general perception of many is that the middlemen are exploiting both the producers and consumers. As a result, they claim that producers are getting a price lower than what they should get. At the other end, consumers are paying a price higher than what they should generally pay. Hence, the suggestion is either to eliminate the middlemen or handover the middlemen’s functions to a governmental authority. This charge is specifically levelled against the middlemen who are operating in the paddy/rice markets in the country.
It is generally believed that a few large-scale paddy millers operate in the market as an oligopoly and control both the quantity and the price of rice to the detriment of paddy farmers as well as rice consumers. This ‘anti-middlemen sentiment’ is being cultivated among even the students studying in the commerce stream. I have observed that one of the most popular items performed by commerce students on stage in their Commerce Day Events is a short drama depicting the curse of the middlemen in the market. This is despite the fact that they themselves train to be middlemen, since commerce means buying and selling, the job of the middlemen.
The exploitation theory not supported by evidence
This popular claim is not borne out in empirical evidence. Two economics dons attached to the University of Colombo – S.M.P. Senanayake and S.P. Premaratne – have worked backward from the retail price of rice in two markets in the Western Province in 2012 – one in Kirulapana and the other in Gampaha – to the price received by paddy farmers to identify the margins earned by each participant in the rice/paddy value chain in Sri Lanka. This they had done in a paper submitted to Australia-South Asia Research Centre in 2016.
In both cases, out of the price paid by consumers, paddy farmers have collected between 80 and 82% of the final price. The balance has been earned by wholesalers, retailers, millers, transport agents and collectors in the supply chain. The cost of processing by the miller has been about 7%, while his margin has been only 3% of the final price paid by consumers.
In the case of vegetables, the comparison of the farmgate price with the market price paid by consumers reveals that there is a price-gap of about 40%. However, this high price gap is due to the high transport costs, on the one hand, and the high waste of vegetables, estimated to be around 40%, in transit, on the other. An improvement in post-harvest handling systems through improved technology will certainly reduce this high waste costs, thereby narrowing the price gap significantly. It would benefit both the producer and the consumer.
Foodflation increases the cost of living
Foodflation causes an increase in the cost of living of people. In the case of the present increases in food prices, the increase in the expenditure by a consumer on food items from end-August 2019 to end-January 2020 has been Rs. 2,010, according to NCPI. It records an increase of 11% on the food budget of a consumer over the budget as at end-August 2019. This is a significant increase and intolerable by an average consumer in the country. To relieve the consumers of the high cost of living two measures can be taken by the government. Immediately, it can increase the market supply by permitting imports to come into the country.
However, since there is a time lag of about one month for any imported food item to reach the market, the relief to consumers will be delivered not earlier than early April. But, by that time, the Maha crop will come to the market and if the market is inundated by both the locally produced food items and imported ones, the prices would fall worsening the conditions of the local farmers. Hence, the decision to import food items should have been taken some time in November last year and, therefore, it is too late to resort to that strategy now.
The other strategy is a medium to long term strategy to increase the productivity and the output in food items so that the market would be kept supplied by a bigger quantity of food items in line with the increase in the population. The improvement in the productivity in food items is essential to keep the costs of production in check and prevent them from percolating to the markets through an increase in the supply prices.
A technical report covering all the subsectors in the agriculture sector
A technical report released in May 2018 and authored by Verite Research for the National Planning Department and the European Union on Sri Lanka’s agriculture sector has listed out the measures to be taken in the medium to long-run to improve both the productivity and the output. It is a comprehensive report covering all the subsectors in Sri Lanka’s agriculture: paddy, field crops, vegetables, fruits, tea, rubber and coconut, sugar, floriculture, inland fisheries, livestock and agroforestry.
The previous government did not consider it necessary to implement these strategies despite it being commissioned by it. As a result, Sri Lanka has already lost nearly two years without a comprehensive agricultural implementation strategy. In this background, the present government run by Gota cannot ignore it since the problem has hit the country head-on today. The longer the country would postpone the implementation of these measures, the worse would be the destiny of its agriculture sector.
Rice paradox: produce more and become bankrupt
Rice is a part of Sri Lankans’ DNA and therefore, early measures are needed to address the existing issues faced by the sector in the style of a ‘rice paradox’. With low productivity, the paradox faced by Sri Lanka’s paddy farmers is that when the harvest is bountiful, they become bankrupt due to prices falling below the production costs. Hence, it is to the benefit of farmers if the country’s rice output is low.
However, this does not sit well with consumers who are great rice eaters compared to their counterparts in other major rice eating countries. On average, a Sri Lankan eats about 110 kg of rice a year, compared to a world average of just 54 kg. Hence, it is necessary to resolve the paradox in the rice sector if it is to sustain.
Diversify the use of rice
The permanent solution lies in improving the yields of rice farmers, on the one hand, and creating a demand for rice as an industrial input, on the other. The former will help farmers to beat the rising costs of production. The latter will facilitate Sri Lanka to absorb a glut in the market, use it to produce industrial goods and export such goods since it cannot export its short grain rice as a food item. If there is no surplus of rice for industrial use, such surplus can still be generated if Sri Lankans learn to eat less rice and more meats and fats.
Even a reduction in average per head consumption by, say 20 kg, will generate a sufficient surplus of about 42 million kg of rice for this purpose. These are long term strategies based on proper awareness, changes in relative prices of rice as against meat and inventions made through the development of science and technology base of the country. The science part is the handiwork of a new subject area called ‘biotechnology’ which has now been added to the curricula of some state universities and private higher learning institutions.
Rice: the water guzzler
The problem with rice compared to maize or corn is that it is a ‘water guzzler’. In farming, paddy fields are flooded by water and about a half of that is lost through seepage and percolation. It is the balance half which is used by the rice plant for its own purposes, known as evaporation and transpiration.
The researchers at the Manila based International Rice Research Institute or IRRI have computed, after verifying a vast amount of data collected from field surveys conducted throughout the globe, the amount of water used by rice plant to produce 1 kg of rice. Total flooding of the paddy fields from sowing to harvesting will use about 2500 litres of water to produce 1 kg of rice. About a half of this is lost through seepage and percolation; accordingly, the real use of water by the rice plant to produce 1 kg of rice is about 1432 litres.
Imagine the price of rice if water is costed at one rupee per litre. Fortunately for consumers, water is supplied to rice farmers almost free of charge either through rains or government sponsored irrigation schemes. But, shortage of water due to droughts will affect both the production and productivity of rice farmers. This is a serious problem in many rice producing nations like China, India and Sri Lanka.
Developing drought resistant paddies
Scientists in IRRI and in leading universities are now engaged in developing water-efficient paddy cultivation methods. IRRI has come up with an ‘alternative wetting and drying’ method. In this method, a field is flooded for a few days and after that water is used up, kept it dry for a few more days before it is flooded again. This method is to save about 30% of water normally used in paddy farming without affecting the rice yield.
Another method suggested is sprinkling water to the field producing ‘aerobic rice’ just like watering a leafy vegetable field. This would save water up to 50%, but there would be a reduction in the output by about 30%.
Hence, it is useful in cultivating paddy in relatively water-scarce regions. But scientists in the University of Western Australia or UWA have attempted at developing a new rice variety which is drought resistant so that it could alleviate the drought-stress experienced by paddy plants. This is the best method of cultivating rice in arid places like Hambantota or Mannar districts in Sri Lanka.
The solution lies in improving farmer productivity
The long-term solution to foodflation is to improve productivity and yield levels in main agricultural crops in the country. For this, Gota needs a medium to long-term strategy. The current approach outlined by him has been to win the elections by pacifying both the consumers and farmers. While keeping it as the immediate objective, Gota should assemble all the stakeholders in the agriculture sector of the country to a common platform and get them to implement a comprehensive agriculture reform strategy targeting medium to long-term.
*The writer, a former Deputy Governor of the Central Bank of Sri Lanka, can be reached at firstname.lastname@example.org
K.A. Sumanasekera / March 2, 2020
120 Kg of Rice.. Jesus Christ..
No wonder our boys have big bellies.
.Specially the Old boys in Kotte, including our Royal Old Boy of the UNP, who is staying put in Srikotha.
Skinny as a rake our Dalits do not have that problem of carrying those Rice Bellies,
Under 2 Bux US a day, I don’t think the Dalits can afford even 60 Kilos a year.
Except of course UNP Dalits who are now out to get Dr Ranil , so their Hero from Keselwatta can become the next PM.
I thought Prez Nande has already busted the Rice Mafia and the Veg Mafia in just under 100 Days.
So I am sure this Foodflation aggregate does not include Riceflation for sure.
But the Vegflation may take a while to come down..
Because the UNP Elite who follow the trendy Dudes like Ranjan and , Poodle Club Baby Suji must be on more Vegies and Beef stakes rather than Rice
That is why they do not have those those big Bellies like their Uncles.
May be Prez Nande’s revolutionary administration measures in the last six months have given a new impetus to our consumers confidence .
And a bit more money in the pocket too to buy food.
That is the reason perhaps for the increase in Foodflation.
It is all about Supply and Demand . Isn’t it?.
And the Mafia is always there on the look out to detect any pick up in demand..
Abdul Kader / March 4, 2020
K.A. Sumanasekera, Okay, now your supply of nonsense has truly exceeded the demand.
shankar / March 7, 2020
“120 Kg of Rice.. Jesus Christ..”
i too have seen the amount of rice heaped on their plates and the potruding bellies and so many i know end up as diabetics.Then the doctor tells them to have only a cup of rice and eat any amount of vegetables.So they are learning the hard way while the diabetes epidemic goes on.why does not the government try to do preventive health problems by educating the public about the harmful effect of rice and the beneficial facts about veggies.maybe it is political reasons.Rice is cheap while veggies are more expensive.For people doing manual labour a heaped plateful of rice is okay ,but for people doing sedentary work it is deadly.
shankar / March 2, 2020
if the price of food goes up he should sack the minister of agriculture.President can’t do everybody else’s work.The ministers are also being paid salaries,not only the president.Only by having the best possible team of people that he can get results.Without a proper team you can’t.Even lee kuan yew had a great team of people who contributed so much for singapore’s success.he was so greatful to them that he looked after them for the rest of their life even after they had retired.
Dinuk / March 2, 2020
Dr. Wije: Sri Lanka is now forced to grow and export food – fruit and veg- for and to foreign markets – to pay its National public debt caused mainly by white elephant development projects and politicians corruption including luxury car imports etc. which is the reason for high food inflation and prices.. and increased FOOD INSECURITY in the country at this time.
The poor always pay for the sins of the rich!
Don Stanley / March 3, 2020
Quite right, as it is “Vegetables, coconuts, red onions and fresh fish which had recorded a sharp increase compared to their levels in December 2019.”
1. Fish including valuable yellow fin Tuna in Sri Lanka’s Exclusive Economic Zone (EEZ), are being looted by French, British, EU, Japanese and Chinese Distant Water Fishing States fleets (DWFS), with help of corrupt officials in Fisheries Ministery, while Sri Lankan fishers recorde poor harvests due to failure of the Ministry to industrialize fisheries for sustainable fishing. Distant water Fishing States (DWFS) that also looted all the fish in the Western Indian Ocean forcing Somali Fishers to become pirates, should be banned from fishing in the Indian Ocean.
The Indian Ocean Tuna Commission is defunct meanwhile as the EU wants 95% quotas.
2. In addition to an Agriculture development strategy, Sri Lanka needs a National Policy and plan for Industrial Production focused on the sustainable use and harvesting its valuable minerals on land and in the ocean. These include living and non-living resources in the ocean, both fisheries, and Rare Earth Elements (REE) and Rare Earth Minerals (REM), such as Pullmodai mineral sands, Eppawala phostpate, Graphite etc.
A nation policy would include 1) Research and Development and 2) Transfer of Technology 3) value addition to enable new product development and industrial manufacture and production in the country. For instance, Solar Panels for Clean Energy in Sri Lanka and Asian markets for which Sri Lanka has many of the minerals. For example Currently a German company that controls Bogala Graphite takes out 300 tons annually from Sri Lanka with very transfer of technology or benefit to the people of Lanka who according to the Eppawala Judgment own these resources.
JD / March 2, 2020
Seri Lanka does not have any appreciable Manufacturing or production, their for export oriented economy. Cpuntries imnports are twice that of exports. Generally pther countries when they live on imports, when their currency is CRASHED in the exchange market, they stop imports. In Sri Lanka, as we have loans which get from every possible place on earth, foreign remittances and tourist dollars, I remember previous Finance minister saying “since 2015 we doubled the salaries. So now the salaries 200% or some times 225%” some thing like that. INCREASING SALARIES WITH THE BORROWED MONEY WILL NEVER WORK.
rbh / March 2, 2020
For the solution lies in improving farmer productivity focus in the news and on social media about stockpiling during the coronavirus outbreak, if it is announce a pandemic tomorrow, we have plenty of time to plan. is impoting food products not fit enough or a need arises countries need over food products due the rational you can see empty supermarkets as the staffs/farmmers are not going to work .
Lal de Mel / March 2, 2020
De-regulation is required in the agricultural sector to allow every land owner to cultivate what he wants to grow using un-subsidized fertilizer and approved agrochemicals. The banning of the use of Glyphosate resulted in the loss of confidence in Ceylon Tea and increased the use of water by about 25% to partially kill the weeds before paddy cultivation. The result was a shortage of water for cultivation of paddy. Plantation Companies gasping for breath from low prices of tea and rubber invested Rs 500 million to diversify to Palm Oil, only to be halted by President Gotabhaya, who appears to be misinformed. Paddy lands in Urban areas are lying fallow, because of the non-availability of labour, while they are prevented from planting anything else by obsolete regulations.
Immediacy19 / March 2, 2020
The two Dons and you are absolutely right in the computation of 80-82% component of return to the farmer. This is rendered possible through free water, subsidized fertilizer ie producer subsidy and food stamps rice ie consumer subsidy benefiting the farmer as well. There is an incorrigible obsession in Sri Lanka and India about ‘Bengal Famine’ avoidance. Hence iron clad programme of self-sufficiency in rice, whatever the cost. While this is the policy of the intelligentsia, the farmer with his native wisdom has responded appropriately. Finding paddy cultivation undeniably UNECONOMICAL, he has annually abandoned cultivation even on land irrigated under Major Irrigation. Acreage lost is by the lakh every year and yet successive governments spend billions on irrigation schemes chasing the will of the wisp of paddy self-sufficiency. Not even in the Greek allens will it come to pass. Like Penelope’s Web – weaving by day and unweaving by night – what is proposed by government is disposed of by the farmer.
Dispensing with the miller and eliminating the middlemen are as puerile as Mahadanamutta’s wisdom. The computation of 3% for the miller is dead accurate. It means rice for the consumer and husk for the miller.
As regards vegetables, this was what Dr. Manmohan Singh, eminent economist said when he was PM, India. Two indispensables are Cold Stores and Refrigerated Transport. The cost is Himalayan. Government does not have the resources, neither the private sector. Foreign participation is essential. This is for Sri Lanka as well. If ‘Luddites’ are shown their place this becomes possible.
Justin Case / March 3, 2020
I have a simple suggestion to His Majesty the President: Put the military to work growing paddy, clearing up government land and growing vegetables, delivering the produce to the market in army vehicles, even sitting on a low cushion and selling the produce to consumers at correct weights and at a fixed price of Rupees 1 per kilo for everything; and Bingo, you’ll have a satisfied populace, who can continue to feast on buth and elawalu until kingdom come
The cost of labour, the cost of bringing new irrigation channels, the cost of manure, harvesting, threshing, winnowing and packeting can all be booked into the corpulent military budget, so that it is invisible to everyone and we can keep on expanding this ginormous slice of our national play money and everyone will be happy.
G’luck your majesty.
Justin Case / March 3, 2020
And as for all the farmers, the middlemen, the lorry drivers, the pola velendaas and other sillara kaarayas, they can join the army.
Lester / March 5, 2020
“Put the military to work growing paddy, clearing up government land and growing vegetables, delivering the produce to the market in army vehicles, even sitting on a low cushion and selling the produce to consumers at correct weights and at a fixed price of Rupees 1 per kilo for everything….”
This is another solution. There is a lot of unused land in the North and East. If the people there don’t know how to use it or don’t want to use it, at least the Army can make it productive. The main thing is that the country should be self-sufficient in all food requirements, so that it is not dependent on foreigners during an external shock like the tsunami.
Lester / March 3, 2020
“The other strategy is a medium to long term strategy to increase the productivity and the output in food items so that the market would be kept supplied by a bigger quantity of food items in line with the increase in the population.”
Another strategy is for the government to subsidize the biggest producers so that supply is consistent and prices are also reasonable.