Sri Lanka blames ‘middle men’, Dambulla market, as vegetable prices begin to fall

ECONOMYNEXT – Authorities in Sri Lanka have started to blame ‘middle men’ and a wholesale market with commission agents in Dambulla, a top agricultural region, which also existed when prices were low or stable, for spiking vegetable prices.

Data showed that prices had fallen 20 to 40 percent in February from a month earlier though they are much higher than in 2017 and 2018.

Sri Lanka’s inflation generally tends to go up as the country recovers from a currency crisis and demand comes back, analysts have said.

In the immediate aftermath of a currency crisis, prices may be depressed.

Unusual Prices

However in late December 2018 and early 2020, erratic weather also contributed to tighter supplies, officials have said. Either floods or droughts may disrupt supplies.

India which is also recovering from a currency crisis and has seen erratic weather in some areas similar to Sri Lanka also saw prices spikes in the same period. Onion prices soared, also sending up prices in Sri Lanka which usually imports from India. (Not only onion and potatoes but other veggies also on the rise – India Today)

Vegetable prices usually ease as supplies with the Maha and Yala season harvest come in. In Sri Lanka vegetables are not freely imported and exported, except for potatoes and onions, which may lead to unusual price spikes, until supplies improve analysts say.

In February prices have started to fall.

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However when currencies fall, prices may not get back to the same level as in the past. A similar price spoke to early 2020 was also seen in early 2015 analysts say.

Sri Lanka’s President Gotabaya Rajapaksa has also instructed immediate officials to intervene and grow more vegetables, a statement from his office said.

Dambulla Market

Officials had also blamed a wholesale market in Dambulla for price spikes, despite the market existing for years and also when prices were low.

The Dambulla market had become a popular among farmers and other suppliers, due to its central location near several agricultural areas and also the operation of commission agents, who do not deal on their own account, in the same way that brokers operate in stock markets.

The market also has groups that buy when prices are low and sell when prices are high during the day, which tends to balance out demand and supply, when large volumes of one product appears at the same time.

Such buying syndicates serve the function of ‘market makers’ who buy on their own account, keeping down extreme daily volatility in prices. Unless there is refrigerated storage, the process cannot be extended over time.

A large number of farmers in the area also bring vegetables directly to the market, as they may be able to get a better price than selling to a collector, who may offer lower prices by the road side to cover the risk of volatile prices in main markets.

Two way quote

Farmers who bring goods to the market are able to get a price within the ‘two way quote’ offered by road side collectors. The two way quote (the gap between the buying and selling price) tends to be wider (the spread) when prices are volatile.

The buying and selling syndicates, some of who ship goods to other markets (an arbitrage function), such as in Colombo would also help reduce volatility.

In Sri Lanka post harvest losses are also high, which also contributes to a high spread.

Within the market however, the two way quote is largely fixed, at a so-called ‘bukki’ which is why some farmers, who are not stupid, goes to the trouble of bringing vegetables directly to the market by bearing transport costs, analysts say.

However due to the lack of economic knowledge the in country, there is weak understanding of how markets work.

There however may be problems such as entry barriers with where the entry of new commission agents has is controlled by a trader association. Whether this contributes to volatility is not clear.

At a meeting with President Gotabaya Rajapaksa, there had been criticism of the Dambulla market.

Large traders with vested interests had also been blamed.

Attention had also been drawn to explore the possibility of cultivating vegetables in state lands in coconut plantations.

Meanwhile coconut prices which also spiked have started to ease.

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Sri Lanka’s National Fertilizer Secretariat has said that there was a spike in demand as farmers responded to higher prices by expanding cultivation. (Colombo/Feb25/2020)