Thursday, 8 August 2013 00:00
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PROTECTIONISM is a double edged sword. On the surface, it seems to be a pragmatic policy that protects the local farmer or businessman and gives impetus to the national economy, but in today’s intensely globalised and specialisation focused world, this can do harm to stakeholders.
A special commodity levy on over 30 essential food items was passed on Tuesday in Parliament, focused on the protection of local farmers and producers amidst stringent objections by the Opposition.
According to the newly imposed special commodity levy, the price of potatoes will increase by Rs. 25 per kg and will remain for a period of four months starting with immediate effect. Among the most common food items on which the levy was imposed was Maldive fish at Rs. 275 per kg, sprats Rs. 10 per kg, dried fish Rs. 75 per kg, red onions and Bombay onions by Rs. 15 per kg, garlic by Rs. 40 per kg, red lentils Rs. 18 per kg, yellow lentils Rs. 22 per kg, oranges Rs. 60 per kg, grapes Rs. 130 per kg, and dried and chillies Rs. 150 per kg.
Minister of Investment Promotion Lakshman Yapa Abeywardena, moving the notifications published in Gazette Extraordinary No. 1808/21 and No. 1813/24, stated that the price increase would help boost local production and curb imports.
He argued that potato farmers would not be able to sell their crop at a reasonable price due to imports from India that cost as little as Rs. 23 a kg. Local producers on the other hand need to be paid at least Rs. 55 per kg if they are to make decent returns and continue farming for another year.
The Minister ironically pointed out that 40,000 MT of potato in 2005 had nearly tripled to 117,000 MT because imports gave relief to the consumer. However, with 50,000 local potato farmers to appease, the Government’s move will now result in consumers having to bear the brunt of the expense.
Despite being obviously outdated, Sri Lanka’s Government continues to impose practices that are unfavourable to consumers, thus pushing up inflation and undermining fiscal policies. Agriculture reform that has promoted higher production, new technology and trends such as organic foods have been all but absent in Sri Lanka. The result is that locally grown fruits and vegetables are expensive and cannot be exported because of their high cost of production.
Sri Lanka, for example, is self-sufficient in rice but cannot compete in the rice exporting global market because it lacks volume and high production levels. Even though private companies have attempted to target niche markets, whereby giving farmers and consumers a fair deal, these efforts have remained small scale.
Transport and storage of fruits and vegetables result in massive wastage – it is estimated that 35% of all produce is lost by lack of proper storage facilities in economic centres – that has been left unaddressed. This means that high quality produce is not available even though the public pays high prices.
Indirect taxation is also a major source of revenue for the Government. Sri Lanka’s taxation on essentials is extremely high while direct taxes reduce year-on-year. This is not only grossly unfair on low income groups but also prevents people from saving and re-investing in the economy, hence, the need to borrow billions. Sadly, turning this vicious cycle around is getting minimum attention from the Government.
