Drop in food prices anticipated during festive season

by Gamini WARUSHAMANA

gamini@sundayobserver.lk
 

The Secretary to the Ministry of Trade, Dr. R.M.K. Ratnayake said that food prices will drop during the festive season.

International commodity prices are going down and freight charges too have been slashed and we observe that local market prices are on the decline, he said.

Market analysts, however, said that since markets are not competitive and not functioning efficiently the advantage of the international commodity price reduction is not passed on to the consumers.

Therefore, Sri Lankan consumers pay higher prices for goods and services, they said.

The advantage of slashing crude oil price - from $147 in July to $48 last week - has not been passed on to the people.

The crude oil price has reduced by 68%. from July and on November 6 the government reduced fuel prices by 30%, but transport cost reduced only by 10%, they said.

According to the CPC price formula with taxes (except the recently introduced Rs.10/litre tax on petrol) in November diesel and petrol prices should be Rs.75 and Rs.90 per litre. The imprudent hedging contract signed by the Ceylon Petroleum Corporation prevents a further reduction of fuel prices.

Dr. Sirimal Abeyrathne of the Department of Economics, University of Colombo said that during the past three months international commodity prices have dropped by 20-50%. This includes wheat, rice and other grain, sugar, milk powder and crude oil.

Market sources said that at today's international price a 400g milk powder packet can be sold at Rs.225, however, the market price remains at over Rs.260.

The international prices decline is continuing and prices were between US$ 3,200-3,300/tonne last week. A few months ago the price was at its peak - US$ 4,700-4,800/tonne and the price decline is over 30%.

A leading milk food company said that they are considering a 10-15% price reduction.

However, pressure from the government to reduce the milk food price cannot be expected because government wants to keep imported milk food prices high to protect and promote the local dairy industry, analysts said. The recently introduced import tax has increased the prices of milk food and sugar.

In the rice market, the fixed price mechanism has adversely affected consumers. Today consumers have to pay a higher price for low quality rice. According to the present cost structure, a market price of good quality rice should be around Rs.50/Kg. However, consumers pay Rs.65/kg for low quality rice.

Dr. Ratnayake said that since this is a domestic issue the Ministry does not bother about it. Imported rice can be sold at Rs.35/kg at today's international price, he said.

The objective of these price policies is protecting farmers and boosting local agriculture. However, consumers have to compensate the cost of all the inefficiencies in the agricultural sector, analysts said.

According to the Director, Price and Wages of the Department of Census and Statistics, D.C.S. Gunawardana, if the commodity price in the local market adjusts with the declining international price, inflation will dip by 5%.

He said that there is a huge gap between the consumer price and producer price of vegetable, fruits and fish and those markets too are not competitive.

The intermediaries get a huge profit and neither the farmers nor the consumers benefit, he said.

Today, inflation is at double digit level and is declining since last June. Point to point inflation stood at 28.2 in June and it has dropped to 20.2 in October.