Sri Lanka plans price formula for wheat flour after building oligopoly

ECONOMYNEXT – Sri Lanka’s government which had blocked free competition in wheat by taxing milled flour at a higher rate than raw grain to give excessive profits to an milling oligopoly is now planning to bring a price formula.

"We will be introducing a pricing formula for wheat flour," Acting Minister of Industry and Commerce Buddhika Pathirana said.

"It will be similar to the price formulas already in place for milk powder, diesel and petrol."

Sri Lanka’s government charges an import duty of 15 percent (or Rs 12 per kilogram) a 7.5 percent port and airport levy and 2 percent nation building tax on wheat grain.

But wheat flour is charged an import duty of 15 percent (or Rs16 per kilogram) a, 7.5 percent PAL, a 2 percent NBT and a 15 rupee cess tax (25 rupees until November 2018) on a kilo of wheat flour giving a massive profit to the two mills.

Before the second mill was established, there was absolute monopoly.

Instead of freeing the import of wheat flour, which would end the state-sponsored oligopoly and generate competition, attempts are now being made to bring a ‘price formula’.

"Some felt that because there are only two wheat flour mills, established on old agreements, that they could raise prices whenever they wanted," Minister Pathirana claimed.

"The Attorney General said that they cannot raise prices just because they want to, and this was communicated to the two firms."

"After that, for the first time in history, the mills reduced prices faster than they raised prices."

The two wheat mills had decided to raise flour prices by 8 rupees in mid-July and had later agreed to reverse the increase, following government intervention.

The country’s eateries had lobbied the government to reduce flour prices.

In the past decade Sri Lanka has taxed wheat flour to make it less affordable compared to rice as well as to give large profits to millers, critics say.

Meanwhile the state is also bringing in a price formula for milk powder in which there is generally a free market. (Colombo/Aug02/2019)