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Saturday October 23rd, 2021

Sri Lanka clears draft law to hike fines 3,900-pct as price controls trigger milk shortage

ECONOMYNEXT – Sri Lanka’s cabinet of ministers had cleared changes to hike fines 40 fold as a price control agency triggered shortages in milk powder from which an autarky tax was lifted while shortages persist in cooking gas.

Trade Minister Bandula Gunewardene had said that the fine would be raised by 3,900 percent to 100,000 rupees from the current 2,500.


Changes to two sections of the law of the Consumer Affairs Authority, the main price control agency had been drawn up and would be brought up to parliament.

“In particular, these amendments seek to provide the necessary legal provisions to control the sale of essential consumer goods at higher prices by certain traders beyond the controlled price,” a government statement said.

“Accordingly, clearance of the Attorney General has been received for the Bill prepared by the Legal Draftsman and the Cabinet of Ministers has given their consent for the proposal tabled by the Minister of Trade to publish the Bill will in the Government Gazette and subsequently submitted to Parliament for approval.”

Minister Gunewardene has said the fines would be used against rice millers and traders who sell above-controlled prices.

Sri Lanka is treading on the past of Roman Emperor Diocletian who in 301 issued an extensive price control order after debasing silver and gold coins by issuing large volumes of copper coins.

Sri Lanka has been printing large volumes of money, depreciating the currency and triggering forex shortages.

When price controls are issued, supplies dry up, the remaining stock is hoarded and a black market is created.


While Minister Gunewardene is raising fines 3,900 percent, Diocletian decreed the death penalty instead of limiting the money issue blaming traders and their ‘avarice’ and ‘untamed fury’

“But since it is the sole desire of untamed fury to feel no love for the ties of our common humanity; and since among the wicked and lawless it is held to be, so to speak, the religious duty of an avarice that swells and grows with fierce flames..,” an Edit on Maximum Prices carved in stone said.

Sri Lanka’s central bank is also continuing to print money.

This week the Finance Minister had ordered a central bank credit scheme to give loans to state enterprises at 4 per cent.

In 2020 and 2021 Sri Lanka’s central bank has issued large volumes of money, mostly to pay state worker salaries triggering forex shortages and depreciation.

The US is also printing money, driving up global commodity in a so-called Powell Bubble including milk powder.

Sri Lankan Mercantilists had earlier defended domestic money printing saying the US was printing money with no apparent problem and questioning why Sri Lanka cannot do the same.

Milk Crisis

Milk powder importers had asked for 200 rupees increase per kilogram as whole milk and skim milk prices soared, shipping costs went up and Sri Lanka’s rupee depreciated under the weight of printed money.

“We were asking this from January,” Lakshman Weerasuriya, Committee member – Milk Powder Importers Association told Sri Lanka’s Sirsasa television.

“The reason we cannot keep these prices anymore is, sometime ago one kilogram of milk powder was at 2.80 dollars and at that time USD was 182 rupees,”

“Now one kilo is 4.20 dollars and one dollar is 210 rupees. Because of that these companies for the past few months incurred a 1500-million-rupee loss per month when selling one kilogram for 945 rupees. Selling for a Controlled price means we lose 270 rupees per one kilogram”

Minister Gunewardene said the price control agency would not give the increase.

“The milk powder companies have asked the Consumer Affairs authority by a great margin,” Minister Gunewardene told reporters.

“But we cannot do that at the moment everyone in the society is making sacrifices.

“When the market was normal these companies were making large profits for a long time. When there is a pandemic they should also take the responsibility of it.”

“The easiest way is to increase the price by around 200 rupees and say continue the supply but it will affect greatly to a larger group in the country’s population.”

With no milk powder on the shelves, consumers now have to do without milk.

When global prices were low, Sri Lanka had also kept domestic prices high with an autarky tax to drive self-sufficiency.

This week the cabinet of ministers had decided to remove the autarky tax on milk powder which gave high profits to domestic dairy firms.

Farmers and rent-seeking ‘import substitution’ companies however are close to the political establishment, unlike importers who provide competition.

The CAA had previously created a shortage of tinned fish and lentils during a lockdown and also disrupted supplies of vegetables and caused massive losses to farmers by punishing traders who bought goods at high prices on the first day and driving them out of business, critics say.

The CAA had also created a crisis in the gas supplies by driving Laugfs out of business.

It had in the past created shortages of cement with its price controls. (Colombo/Aug011/2021)

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