Drop in some essential commodity prices

By Gamini Warushamana

Amidst comments and criticism on the tax burden and resulting price increases in consumer goods, price movements of some essential commodities in the Pettah wholesale market shows increases and sharp declines.

With the surge of imports, prices of big onion, red onion and potatoes have declined sharply and the wholesale price of big onions has declined to between Rs. 80-85 per kg from around Rs. 200 per kg a few weeks ago.

Traders said that prices will further decline in the coming weeks with cheaper Indian imports. “The harvesting season of big onions in India has now started, a little late this year. Therefore, onion prices will decline further to Rs. 65-70 by next week. Prices of potatoes imported from India and Pakistan have impacted on wholesale prices and the price has now dropped to Rs. 70-80 per kg,” said the proprietor of MTR and Sons, Pettah.

The reduction of the Rs. 25 per kg tax on big onions and potatoes is one reason for the price decline. However, wholesale prices are mainly determined by supply and demand. Oversupply is the main reason for the price decline, he said. However, the supply increased after the tax cut, he said.

The tax imposed on several commodities is reflected in its wholesale prices. Traders said that sugar price has increased by Rs. 3, spices have increased between Re. 1 to Rs. 5. The major impact is on dry fish prices. In the budget, the tax on dry fish was increased from Rs. 65 to Rs. 102, sprats from Rs.10 to Rs. 26 and Maldive fish from Rs. 250 to Rs. 302, traders said.

They said that there is pressure on rice price and since there is a controlled price the profit margins have declined to unaffordable levels. Mill owners have increased prices sharply during the past few months, said the proprietor of Solomon Traders, Pettah. Traders expect lower commodity prices during the festive season with an increase in supply.

Analysts said that though the tax on some commodities have impacted on prices the net impact will be neutral. The government has conflicting objectives in the budget and to reduce fiscal deficit it was compelled to increase tax. To keep inflation low is another objective.

Therefore, the tax imposed on consumer items may not create significant pressure on consumer price, they said.

Delivering the keynote address at KPMG post budget seminar, Central Bank Governor Ajith Nivard Cabraal said that the government is keen on maintaining food security in the country. Therefore, proposals were made in the Budget to increase food production, maintain sufficient stocks and keep prices at affordable levels. Subsidies given to the agriculture sector, mainly the fertiliser subsidy, is one important strategy which continues from the 2005 Budget. However, some analysts argue that as income tax has declined the government was compelled to tax consumer goods and, therefore, price increases were inevitable.

“The subsidies to agriculture benefits only a protected few and not the entire population. This is import substitution but it is not genuine. What we need is genuine import substitution which is to increase productivity in the agriculture sector,” said economic analyst Lloyd Yapa.