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Tuesday November 29th, 2022

Sri Lanka chicken and eggs in crisis as soft-peg hits feed

ECONOMYNEXT – Sri Lanka’s poultry sector is in crisis with feed shortages worsening and prices going up, an industry official warned as the rupee collapsed under the pressure of money printed to keep interest rates.

Broiler meat prices have reached 800 to 900 rupees a kilogram and eggs went over 30 rupees threatening the availability of protein from around 450 to 500 rupees last year.

“One of the biggest issues is not having raw materials to make animal food,” Ajith Gunasekara, President of the All Island Poultry Association told EconomyNext.

“In the last two months, we could not import the raw materials for the food, because of the dollar crisis.”

Sri Lanka started printing money to keep interest rates down (monetary stimulus) after cutting taxes (fiscal stimulus) in a bid to create a ‘production economy’ in an extreme Keynesian boom policy ignoring warnings from classical economists.

Sri Lanka has been able to print money since 1950 when a soft-peg central bank replaced a currency board which had kept the country stable through two World Wars and a Great Depression.

Keynesian stimulus hits chicken

“Due to not having good nutritious raw materials the farmers were not able to give nutritious food for the animals, especially layers,” Gunasekara said.

“That including the heat nowadays, egg production fell by 40 percent.”

Sri Lanka’s State Veterinary Surgeons Association has warned that farmers are culling layer chicken due to the lack of feed selling for meat.

It takes more than 6 months to grow a chicken and it would take more than a year for the sector to reach normalcy, officials said.

Over 70 percent of the production cost of poultry farmers is feed cost.

India credit for chicken feed?

The Poultry Association is hopeful that maize and feed ingredients could be imported under the Indian credit line.

“According to them (authorities) the food items that are to be purchased under the Indian credit line also includes animal food,” Gunasekera said.

“From today (Monday) we asked the suppliers to get the raw materials from India under this credit line.”

Poultry farmers get materials from European and Chinese markets too but are still unable to import due to a dollar shortage.

“When we can’t supply to the demand the first people that will be affected is the small-scale farmers,” Gunasekera said.

“It is already happening. Large scale farmers are also facing this issue because they also make their own animal food needed for their farms and the production costs increase for them as well.”

However, Gunasekerasays they don’t want to halt the production as that will create a major price hike and with the green light they have received from the government the industry is hopeful.

The rising price of meat and fish are also driving up the demand for eggs he said. (Colombo/Mar24/2022)

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A new Sri Lanka monetary law may have prevented 2019 tax cuts?

ECONOMYNEXT – A new monetary law planned in 2019, if it had been enacted may have prevented the steep tax cuts made in that year which was followed by unprecedented money printing, ex-Central Bank Governor Indrajit Coomaraswamy said.

The bill for the central bank law was ready in 2019 but the then administration ran out of parliamentary time to enact it, he said.

Economists backing the new administration slashed taxes in December 2019 and placed price controls on Treasuries auctions bought new and maturing securities, claiming that there was a ‘persistent output gap’.

Coomaraswamy said he keeps wondering whether “someone sitting in the Treasury would have implemented those tax cuts” if the law had been enacted.

“We would never know,” he told an investor forum organized by CT CLSA Securities, a Colombo-based brokerage.

The new law however will sill allow open market operations under a highly discretionary ‘flexible’ inflation targeting regime.

A reserve collecting central bank which injects money to push down interest rates as domestic credit recovers triggers forex shortages.

The currency is then depreciated to cover the policy error through what is known as a ‘flexible exchange rate’ which is neither a clean float nor a hard peg.

From 2015 to 2019 two currency crises were triggered mainly through open market operations amid public opposition to direct purchases of Treasury bills, analysts have shown.

Sri Lanka’s central bank generally triggers currency crises in the second or third year of the credit cycle by purchasing maturing bills from existing holders (monetizing the gross financing requirement) as private loan demand pick up and not necessarily to monetize current year deficits, critics have pointed out.

Past deficits can be monetized as long as open market operations are permitted through outright purchases of bill in the hands of banks and other holders.

In Latin America central banks trigger currency crises mainly by their failure to roll-over sterilization securities. (Colombo/Nov29/2022)

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Sri Lanka cabinet clears CEB re-structure proposal: Minister

ECONOMYNEXT – Sri Lanka’s cabinet has cleared proposals by a committee to re-structure state-run Ceylon Electricity Board, Power and Energy Minister Kanchana Wijeskera said.

“Cabinet approval was granted today to the recommendations proposed by the committee on Restructuring CEB,” he said in a message.

“The Electricity Reforms Bill will be drafted within a month to begin the unbundling process of CEB & work on a rapid timeline to get the approval of the Parliament needed.”

Sri Lanka’s Ceylon Electricity Board finances had been hit by failure to operate cost reflective tariffs and there are capacity shortfalls due to failure to implement planned generators in time. (Colombo/Nov28/2022)

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Sri Lanka new CB law to cabinet soon as IMF prior action

ECONOMYNEXT – Sri Lanka’s new central bank law will be submitted to the cabinet as a prior action of International Monetary Fund with clauses to improve governance and legalize ‘flexible’ inflation targeting, Central Bank Governor Nandalal Weerasinghe said.

Under the new law members of the monetary board will be appointed by the country’s Constitutional Council replacing the current system of the Finance Minister making appointments.

“It will be a bipartisan approach,” Governor Weerasinghe told an investor forum organized by CT CLSA Securities, Colombo-based brokerage.

“The central bank’s ability to finance the budget deficit will be taken out. Thirdly the flexible inflation targeting regime will be recognized in the law as the framework.”

The law will also make macro-prudential surveillance formally under the bank.

There will be two governing boards, one for the management of the agency and one to conduct monetary policy.

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