Sri Lanka price controls, state interventions hit fertilizer sector
ECONOMYNEXT – Sri Lanka’s fertilizer supplies had been disrupted after the government slapped price controls as costs rose and the rupee fell, leading to more state interventions in imports, an agro input firm has said.
Sri Lanka gave cash grants for farmers to buy fertilizer from the open market after 2015 but price controls had been slapped on urea, muriate of potash and triple super phosphate fertilizer, amid rising costs after.
The margins on fertilizer is ‘wafer thin’ AgStar Plc, a publicly traded company told sharehodlers.
"Despite an increase in global prices of fertilizer and the devaluation of the rupee against the dollar, we were unable to increase selling price in line with these market developments due to government dictating ceiling prices of urea, MOP and TSP," the firm said.
"Sales declined drastically in the final quarter of the2017/18 financial year as private sector players reduced fertilizer imports.
"The shortage of fertilizer in the market subsequently led the government to take urgent measures to supply demand."
Under standard economy theory (the law of supply) when price ceiling are applied the quantity supplied would fall. The quantity demanded in the meantime can go up (law of demand), preventing a market clearing price from being established.
The mimatch creates a ‘shortage’. It can also lead to a ‘blackmarket’ as supplies come at the market above the controlled price.
The government late last year had then announced that subsidized fertilizer would be given again for paddy. Farmers had then waited for the subsidized fertilizer.
For the non-paddy sector private firms were allowed to import fertilizer but a quota of 375,000 metric tonnes was imposed.
The firm also faced delays in getting approvals for agro chemicals and value-added fertilizers. (Colombo/June07/2018)