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Sunday January 29th, 2023

Sri Lanka chicken, egg production plunge amid soft-peg collapse

ECONOMYNEXT – Sri Lanka’s chicken meat production has collapsed 30 percent and egg output 40 percent as a currency collapse pushed up costs feed imports were blocked by foreign exchange shortages, an industry official said.

Sri Lanka is now going through the worst currency crises triggered by the island’s Latin America style intermediate regime central bank set up by a US money doctor in 1950.

“Small and medium farmers are leaving the business due to feed shortages and because big poultry companies are stopping buy back schemes,” Ajith Gunasekera, President of the All Island Poultry Association said.

Broiler meat output has fallen 30 percent to 12,000 metric tonnes a month from 18,000 metric and prices have shot up, he said.

A kilo of chicken is around 1,200 rupees from 460 rupee levels before economists started to print money to target an output gap by mis-targeting interest rates, and official inflation rose 39 percent in the year to May 2022.

Monetary Malnutrition

Sri Lanka’s central bank printed money for over two years to mis-target interest rates and collapsed the currency to 360 to the US dollar from 200, in a failed attempt to float the currency with a surrender requirement (forced sale of dollars to the central bank).

Though interest rates were raised in April forex shortages are continuing as attempts are made to enforce an unstable peg at 360 to the US dollar with borrowed dollars and money is printed to pay state worker salaries (Sri Lanka pegs rupee in both directions in May 2022 amid ‘float’).

The current economic problems come from applying floating rate monetary policy (liquidity injections or printing money from open market operations for stimulus) to a reserve collecting peg (flexible exchange rate).

Inflation and currency depreciation created by the central bank have put protein in particular out of reach of the less affluent pushing up malnutrition as had happened when the country’s economists who favour collapsing soft-pegs printed money in earlier occasions.

Basic starch in the form of rice has rise from 105 rupees a kilogram to 230 rupees a kilogram after the latest bout of money printing while people are losing jobs and wages are cut in the private sector.

Doctors at Lady Ridgeway, the country’s main children’s hospital have said they are seeing higher levels of malnutrition among children as the flexible exchange rate bites.

Sri Lanka’s economists have fiercely resisted changing the unstable soft-peg to a single anchor regimee such as a hard peg or a clean float with no reserves so that they could continue to intervene and depreciate the currency (REER targeting) to boost exports by destroying real salaries of workers.

The economists have destroyed the currency from 4.70 to US dollar in 1950 to 360 to the US dollar so far and have imposed trade and exchange control on the public who are net savers are unable to print money and cannot create monetary instability.

Of late expatriate workers are also being scapegoated for sending money to their families hit by inflation, outside official banking system linked to the non-credible pegged system.

Analysts have called for single anchor regime with strict laws to restrain the central bank’s independence to engage in ‘flexible’ policies maintain and monetary stability in the future. (Sri Lanka’s central bank needs accountability and restraint, not independence)

Eggs Production

Eggs which were around 18 to 25 rupees before the latest money printing bout have now shot up to 43 to 50 rupees.

Egg production has collapsed 40 percent, amid feed shortages.

Gunasekera said daily egg production which was around 700,000 to 800,000 and now fallen to around 400,000.

“Chicken are also laying fewer legs due to nutrition problems,” Gunasekera said “A chicken will usually lay about one egg a day but without proper feed they will lay fewer eggs.”

Egg prices are up partly due to high transport costs from Kuliyapititya where most of the large egg farms are located to Colombo, he said.

About 73 percent of the cost of raising broilers was feed.

Maize which was 40 to 45rupees a kilogram has now gone up to 80 to 90 rupees a kilogram but was there was no supply with the domestic Maha season harvest having failed due to a fertilizer ban.

Due to reduced paddy milling, rice polish is also not available.

Forex shortages from the non-credible peg has made it difficult to import maize or soya meal.

The industry is hoping to get some inputs from the Indian credit line. (Colombo/June18/2022)

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  1. Veerapuran Appu says:

    Sack the lot and employ Singaporeans to manage the economy. No corruption, 100% output. SRI LANKANS COULDNT ORGANiSE A PARTY IN A BREWERY

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  1. Veerapuran Appu says:

    Sack the lot and employ Singaporeans to manage the economy. No corruption, 100% output. SRI LANKANS COULDNT ORGANiSE A PARTY IN A BREWERY

Sri Lanka operators seek higher renewable tariffs, amid exchange rate expectations

ECONOMYNEXT – Sri Lanka’s renewable companies say they need tariff of 40 to 45 rupees a unit to sell power to the Ceylon Electricity Board and the agency owes them tens of billions of rupees for power sold in the past.

The association has strong exchange rate expectations based on the country’s dual anchor conflicting monetary regimes involving flexible inflation targeting with a reserve collecting target.

“In the coming year of course because of the rupee devaluation, I think the solar energy sector might require tariffs closer to RS 40 or RS 45, hydropower will also require tariffs on that scale,” Prabath Wickremasinghe President of the Small hydropower Developers Association told reporters.

“I think right now what they pay us is averaging around RS 15 to RS 20.”

Some of the earlier plants are paid only 9 rupees a unit, he said. The association there is potential to develop around 200 Mega Watts of mini hydros, 700 to 1000MW of ground mounted soar and about 1,000 rooftop solar.

In addition to the rupee collapse, global renewable energy costs are also up, in the wake of higher oil prices in the recent past and energy disruption in Europe.

The US Fed and the ECB have tightened monetary policy and global energy and food commodity price are now easing.

However in a few years the 40 to 45 rupee tariffs will look cheap, Wickremesinghe pointed out, given the country’s monetary policy involving steep depreciation.

From 2012 to 2015 the rupee collapsed from 113 to 131 to the US dollar. From 2015 to 2019 the rupee collapsed from 131 to 182 under flexible inflation targeting cum exchange rate as the first line of defence where the currency is deprecated instead of hiking rates and halting liquidity injections.

From 2020 to 2022 the rupee collapsed from 182 to 360 under output gap targeting (over stimulus) and exchange rate as the first line of defence.

“The tariffs are paid in rupees,” Wickremasinghe said. With the rupee continuing to devalue in other 5 years 40 rupees will look like 20 rupees.”

Sri Lanka has the worst central bank in South Asia after Pakistan. Both central banks started with the rupee at 4.70 to the US dollars, derived from the Reserve Bank of India, which was set up as a private bank like the Bank of England.

India started to run into forex shortages after the RBI was nationalized and interventionist economic bureaucrats started to run the agency. Sri Lanka’s and Pakistan’s central bank were run on discretionary principles by economic bureaucrats from the beginning.

The Central Bank of Sri Lanka was set up with a peg with gold acting as the final restraint on economic bureaucrats, but it started to depreciated steeply from 1980 as the restraint was taken away.

Now under so-called ‘exchange rate as the first line of defence’ whenever the currency comes under pressure due to inflationary policy (liquidity injections to target an artificially low policy rate or Treasuries yields) the currency is depreciated instead of allowing rates to normalize.

Eventually rates also shoot up, as attempts are made to stabilize the currency which collapses from ‘first line of defence’ triggering downgrades along the way.

After the currency collapse, the Ceylon Electricity Board, finances are shattered and it is unable to pay renewable operators.

Unlike the petroleum, which has to stop delivery as it runs out of power, renewable operators continue to deliver as their domestic value added is higher.

However they also have expenses including salaries of staff to pay.

The CEB which is also running higher losses after the central bank printed money and triggered a currency collapse, has not settled renewable producers.

“In the meantime, we have financial issues with the investors and CEB owns more than 45 million rupees in the industry,” Warna Dahanayaka, Secretary of Mini Hydro Association, said at the conference.

“We can’t sustain because we can’t pay the salaries and we can’t sustain also because of the bank loans. Therefore, we are requesting the government to take the appropriate action for this matter.”

Sri Lanka and Pakistan have identical issues in the power sector including large losses, circular debt, subsidies due to depreciating currencies.

In Sri Lanka there is strong support from the economists outside government for inflationary policy and monetary instability.

The country’s exporters, expatriate workers, users of unofficial gross settlement systems, budget deficits and interbank forex dealers in previous crises have been blamed for monetary instability rather than the unworkable impossible trinity regime involving conflicting domestic (inflation target) and external targets (foreign reserves).

The country has no doctrinal foundation in sound money and there is both fear of floating and hard peg phobia among opinion leaders on both sides of the spectrum regardless of whether they are state or private sector like any Latin American country, critics say.

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