ECONOMNEXT – Sri Lanka’s emergency food commissioner has seized 807,375 kilogram of rice from private traders and millers on September 08, to sell through, Sathosa, a network of state-run retail shops, after miller broke a deal, a statement said.
“During the raids carried out by the Commissioner- General of Essential Services on September 08, 2021 alone, 807,375 kilograms of rice were obtained from the rice warehouses owned by the large-scale mill owners at the government controlled price and handed over to the Sathosa,” a statement from the President’s media spokesman said.
Sri Lanka has controlled rice imports for years, blocking competition and keeping domestic rice prices above global prices and its quality low (its odor and palate unsuitable for international trading), making it a non-traded good except for some expatriate communities.
Sri Lanka’s parliament in which the ruling party has a two third majority passed the controversially gazetted emergency laws, appointing a military Major General as a Commissioner General of Essential Services who, with the price control agency, is raiding businesses accused of ‘hoarding’.
Sri Lanka has printed large volumes of money under as bond auctions fail due to price controls strung along the yield curve, and the central bank has bought then with newly created reserve money.
After giving convertibility to the record creation of new rupees, the central bank’s reserve liabilities are starting to exceed its net reserves.
With more new money being printed, there are now forex shortages making imports difficult. A new price control of 203 was imposed recently making it more difficult for imports.
Global commodity prices have also risen due to money printed by the Federal Reserve in the so-called Powell Bubble, driving food, base metals and energy to level seen during the Greenspan-Bernanke bubble in 2008.
Sri Lanka’s domestic rice millers, some of whom have built environmentally controlled warehouses are able to raise prices whenever global prices go up and keep them higher than global price through import protection, when global prices drop, analysts have said.
Sri Lanka also raided and seized sugar stocks which have been imported.
Under emergency, private stock and also warehouses and vehicles can be seized.
Amid intensified money printing mainly to enforce a price control on auctioned bills and bonds Sri Lanka has put a price control on spot foreign market but is not giving convertibility to enforce the rates, leading to rationing.
Forward cover to importers has also been banned leaving importers who bring down foods on credit, exposed to exchange rate fluctuations.
Precios cuidados broken
Meanwhile the statement said mill-owners had broken agreements with the government to keep rice prices down, triggering the raids.
“From the very beginning, the government took measures to resolve the issue of rice by reaching an agreement with all stakeholders,” the statement said.
“The government expected a fair system that would protect the farmer, the businessman as well as the consumer. President Gotabaya Rajapaksa held lengthy discussions with leading rice mill owners.
“Agreements were reached.”
Argentina, whose money printing central bank Sri Lanka’s has been modeled on also has similar schemes from time to time, generally known as precious cuidados (price of caring or care prices).
However the agreements have been broken and millers were squeezing supply.
“At the same time, in the last few days, large-scale rice mill owners have reduced their daily rice production and distribution by more than 50 percent,” the statement said.
“It was then that the Commissioner-General of Essential Services, who was appointed vesting full
powers under the ‘Public Security Ordinance’, took measures to ensure maximum justice to the
Sri Lanka has had similar foreign exchange shortages, price controls, black markets and shortages in the 1970s when the central bank bought most of the Treasury bills.
Analysts have urged the price controls on auctioned bonds to be lifted so that private savings will be channeled to finance the deficit and no new reserve money is created to trigger forex shortages. (Colombo/Sept12/2021)