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Wednesday May 18th, 2022
Economy

Sri Lanka follows Argentina into ‘precios cuidados’ as rice prices soar amid money printing

ECONOMYNEXT – Sri Lanka plans to control retail prices of rice through an agreement with millers, a minister said reminiscent of an Argentina style move and the country also plans to punish traders who defy the order with fine which will be raised 40 times from the current level.

“Today one kilogram of Nadu rice is 120 rupees, Samba is 150 rupees and Keeri Samba is 225 rupees,” Minister of Agriculture, Mahindananda Aluthgamage told reporters.

“Next week we are coming to an agreement with the paddy miller on the price they can sell Nadu, samba and Keeri samba.”

Keeri samba is available at supermarkets at around 180 levels.

He said from the first week of August the prices of Nadu, Samba and Keeri Samba will be reduced by 50-75 rupees in the market.

Precios cuidados

Sri Lanka has been printing unprecedented volumes of money over the past 18 months, triggering a 4 billion US dollar balance of payments deficit as the finance ministry went with printed money in hand to get dollars to repay debt (convertibility in the financial account) and some importers did the same.

Importers are no longer given dollars by the central bank (limited or no convertibility in the current account) leading to rationing of foreign exchange and the emergence of parallel exchange rates.

Analysts and economists have called for changes to Sri Lanka’s Latin America style central bank to curb domestic operations to force the agency to keep to its mandate of providing monetary stability and stop currency depreciation and inflation.

A Fed ‘money doctor’ in 1950 set up Sri Lanka’s central bank in the style of one set up in Argentina where money printing triggers severe currency collapses and inflation.

Argentina also has similar price agreements with the retail sector called precious cuidados (caring prices) to keep essential goods prices down amid money printing. Argentina has defaulted on foreign debt several times after printing money.

Read Argentina’s ‘Care Prices’ list here.

In 2021 however global commodity prices are also going up due to Federal Reserve money printing with the ‘Powell bubble’ firing up food, energy, precious and base metals.

Farmgate Controls

Minister Aluthgamage said farmgate paddy (rough rice) prices will also be controlled. In the last season competition between buyers had driven up prices.

“For the first time we will bring the controlled price for rice under the full control of the government,” Aluthgamage told parliament earlier in the week.

Paddy Marketing Board will pay 56.50 rupees for rupees a kilo for Samba, Nadu Keeri Samba or any paddy meeting high quality standards, which is delivered to warehouses, Aluthgamage told parliament earlier.

A price of 55.00 rupees will be paid at the farmgate and 1.50 rupees a kilogram will be paid for transport to collectors.

He said an agreement will be reached among millers to buy rice at between 50 to 52 rupees.

“We are going to sign an agreement will all rice millers to keep the price around 50 to 52 rupees,” he said.

“In this harvest season no miller will buy above 50 to 52 rupees. Why, because there is no point in doing that. They cannot sell.”

The Trade Ministry will control retail prices and fine those who defy the order 100,000 rupees, up from 2,500 rupee now, he said.

“We are now bringing a newact to the parliament and under that if they sell rice for a higher price, penalty will be 100,000 rupees.”

Price controls however can drive stocks underground and create black markets and shortages. Sri Lanka’s Consumer Affairs Authority had earlier created shortages in tinned fish, dhall and has now driven a liquefied petroleum gas supper out of business. (Colombo/July31/2021)

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