Sri Lanka lifts price control on chicken, reducing room for corruption
ECONOMYNEXT – Sri Lanka has lifted price controls on whole chicken, a legacy of the ousted Rajapaksa regime, which analysts say removes one source of corruption in a third world government.
Price controls, which were a part of the controlled economy up to 1977, were abandoned when the economic freedoms improved from 1978.
However, during the last regime, price controls returned in a wide scale under the then-trade minister Bandula Gunewardene, who was a teacher of economics.
Chicken price controls were lifted by gazette notice.
Price controls discourage production, and generate rationing and blackmarkets. Price controls are a key cause of corruption, providing lucrative opportunities for rent seekers.
"Price controls create incentives for individuals or groups to bribe officials to maintain the flow of such goods or to acquire an unfair share at the below-market price," notes an International Monetary Fund paper on causes of corruption.
In the 1970s, the co-operative movement and state trading firm were the main sources of corruption, with managers behaving like petty kings, doling out rationed goods under price controls to favoured parties and the ruling elite. Rationed goods were also provided to blackmarketers.
It is well-known that a minister of the last regime gained favour with the wives of many politicians through his ability to give good when he was working at a retail store of a state trading firm.
Price controls can give rise to corruption each time negotiations are held with firms under price controls to raise the ceiling or when ceilings are lifted.
There have been cases where price controls in Sri Lanka were lifted in return for election financings, according to sources.
Sri Lanka’s price controls on chicken led to distortions in the market as maize, the key raw material in chicken feed, was also kept artificially high with import duties. This has led to squeezing of margins of poultry farmers and feed producers. (Colombo/Apr06/2017)