ECONOMYNEXT – Sri Lanka’s poultry farmers who have been producing protein for the population despite government import duties taxes on inputs have called for an end to a license raj that has kept maize prices artificially high.
Sri Lanka’s All Island Poultry Association has called for the government to liberalize the import regime which has pushed up the imported cost of maize to 52 rupees a kilo, though after paying freight the actual cost is only 37 rupees a kilo.
Up to 60 percent of the production cost of chicken meat is maize, the association says.
Ajith Gunasekara, President of All Island Poultry Association (AIPA) said "intermediary trader dominance" in the maize sector.
Sri Lanka has imposed high taxes on imports to promote domestic maize production, but in the process higher up the value chain sectors such as chicken meat and processed foods uncompetitive n export markets and more expensive domestically, a problem of so-called ‘effective taxation’.
Chicken meat itself is under import protection.
Chicken consumption has been going up and the association says this year 400,000 metric tonnes of maize is needed.
The department of agriculture has upped 2018 Maha (main) cultivation season maize production to 273,000 metric tonnes as rains returned after output collapsed to 163,000 tonnes in 2017 amid a drought.
“Since local production of maize ends in May, traders tend to hike up prices on local stocks to capitalise on high demand," Gunasekara said in a statement.
"Ultimately this hits our local, poultry farmers hardest when they attempt to purchase maize for poultry feed."
He says total taxes on a one kilo of chicken meat is estimated at 85 rupees, though the workings were not elaborated. He said the poultry industry had generated 16.5 billion rupees in taxes for the government.
Gunasekara says while protectionism has boosted domestic production it has not brought down costs and it was "extremely harsh on domestic poultry farmers."
Economic analysts say this is a standard outcome of protectionism. Maize farmers are under no requirement to produce at globally competitive prices as competition has been eliminated by import duties.
In Sri Lanka on top of an import duty, a permit system also exists, fostering further corruption and abuse.
A permit or licensing system gives privileges to a few importers, who in turn are free to sell at whatever price they want, because it is not possible for any state to accurately predict demand and the incentive is always to restrict the supply.
The farmers say they should be given import permits at the beginning of each year. At the moment there are delays in the current process of issuing permits.
"When the quota permits are not issued on time, the traders swell the CIF price knowing the local farmers are desperate to meet the demand," he said.
The poultry association says it is willing to buy local maize at 45 rupees a kilogram, which is above the 37 rupee import price.
The poultry farmers say despite the regulations from the government which is blocking progress, poultry farmers have been providing protein nutrition to the people, with latest estimates of per capital consumption estimated to have improved to 12 kilos per person from 10 kilos.
Expensive protein, and agricultural sector protectionism in general is one of the key reasons for early childhood stunting, economic analysts say.
Elimination of license and permits could also reduce corruption analysts say.
Licenses and permits usually lead to corruption and mis-use and politicians or officials in any country are unwilling to give up a permit raj once it has been set up, analysts say. (Colombo/May21/2018)