ECONOMYNEXT – Sri Lanka is mulling looser import licenses or an import duty on wheat flour State Minister of Finance Ranjith Siyambalapitiya told parliament after a brewing controversy over import controls that recreated a duopoly.
“We are discussing whether there is an alternative to the restrictive import license policy that is now followed within the Finance Ministry, Trade Ministry and Agriculture Ministry,” Minister Siyambalapitiya told parliament.
“In the future we expect to widen the permits to bring the required volume of wheat. Or we can revise the import tax, since the existing stocks are now lower.”
Minister Siyambalapitiya claimed imports were restricted, giving a controversial duopoly to two wheat millers because there were 163,000 tonnes of wheat flour in the country.
He claimed that the holders would make profits if a tax was raised. to protect rice farmers. Global market prices were falling, he said.
Opposition legislators had slammed the import license which reduced the food freedoms of the people and recreated a duopoly among two millers at a time when global prices were easing, giving large profits to the companies.
About 1.35 kilograms of wheat grain is required to produce 1 kilogram of wheat flour, Minister Siyambalapitiya said.
Based on calculations by the Consumer Affairs Authority and Customs data, flour from milled grain imported in June can be sold at 192.39 rupees a kilogram with a 9.63 percent profit, Minister Siyambalapitiya said.
In July the cost went up to 203.62 rupees a kilo, he said.
Milling generates by products which can be sold or exported as animal feed. It is not clear whether the revenue was used in the calculations.
Imported flour could be sold at 197.62 with a 5 percent margin, he said.
Opposition legislators had protested that wheat flour was taxed at 35 rupees a kilogram while grain was only taxed at 3 rupees.
Therefore, the state was losing tax revenues and consumers were paying higher prices, they said.
Meanwhile Minister Siyabalapitiya said after restricting imports it was gazetted as a listed item by the Consumer Affairs Authority to impose price controls in another state intervention.
The CAA frequently creates shortages by artificially price controls. The latest debacle involved price controls on eggs, while import duties and licenses restricted the import of maize, the main ingredient in chicken feed.
In another state interference, the CAA has also banned the use of paddy in chicken feed.
In yet another state intervention, Minister Siyambapalapitiya said wheat prices were kept high to keep rice prices high and give profits to farmers.
Sri Lanka is expected to have a good rice harvest this year and low wheat prices could reduce the demand and farmers will start protesting, he said.
Due to long term protection Sri Lanka farmers do not produce exportable grades of rice, unlike their counterparts in Pakistan and India.
Wheat flour imports cost foreign exchange, he said.
Sri Lanka’s macro-economists usually print money to cut rates triggering foreign exchange shortages leading to entire economic plans being made to ‘save foreign exchange’ at the cost of economic inefficiency and free trade.
As a result of running ‘macro-economic policy despite having a pegged exchange rate, Sri Lanka has long run various protectionist tax arbitrage schemes, driving potential state revenues to profiteering producers on the claim that it saved ‘foreign exchange.’
Sri Lanka has controls on rice, maize and other cereals to give profits to various ‘domestic producers’ at the expense of the less affluent sections of the public.
Essential goods like food and building materials involving hunger and homelessness are ideal products for profiteers, critics say. (Colombo/Aug30/2023)