ECONOMYNEXT – Sri Lanka’s Consumer Affairs Authority has been blocking the entry of milk powder to the market through its price control power is expected to relax the restriction next week, which may allow imported supplies to reach the market, reports said.
Sri Lanka’s State Minister for Consumer Affairs Lasantha Alagiyawanna had met milk powder importers on Saturday to discuss a new price control and had agreed to a 200 rupee increase per kilogram compared to 350 requested, privately owned Derana TV reported.
It will be submitted to government committee on cost-of-living for approval.
Sri Lanka’s Consumer Affairs Authority had created severe hardships for people creating shortages of milk powder and liquefied petroleum gas with its price control, forcing importers to halt operations to prevent going bankrupt.
Price controls automatically lead of rationing and black markets.
Lakshman Weerasuriya, a member of an association representing milk powder importers, told the television station said the exiting price of 945 rupees was set at a time when the rupee was at 186 to the US dollar and milk powder was 2.80 dollars kilogram.
Sri Lanka’s rupee had collapsed due to money printing – mainly to pay state worker salaries – which had triggered forex shortages and excess imports.
“Though the US dollar is listed as 203 rupee at banks we buy at 238 rupees,” he said. “A tonne of milk powder is 4,100 to 4,200 US dollars.
“We asked for a 350 rupee increase in. We were offered 200 rupees. We hope to sign an agreement next week.”
“But we said this is if dollars are available at 203 rupees.”
Sri Lanka is operating a deadly monetary arrangement without a consistent anchor called ‘flexible exchange rate’ where convertibility is suddenly and arbitrarily suspended from time to time, leading to currency collapses.
At the moment convertibility at 203 to the US dollar had been suspended for most trade transactions by the central bank, leading to the exchange rate floating in an over-the-counter market towards 230 to the US dollar.
If the price increase is allowed, and importers can bring in the produce a 400 gram pack of powder will go up by 78 rupees to 458 rupees, the report said.
The central bank has been printing money mainly to pay state worker salaries after tax cuts in December 2019 created a big hole in the budget, which was worsened by an import ban in cars and other highly taxed items.
The money was printed to fill gaps in the budget and also through price control at bond auctions, where real bids dried up like milk powder.
Newly appointed Central Bank Governor Nivard Cabraal lifted the price control within a day of assuming office and there is expected to be some volatility in rates as the market gets used operating without controls and money starts flowing back after rates spike.
Executive Director of the CAA Thushan Gunewardene, who had be in charge as the agency created most of the shortages is expected to resign next week, the report said.
Whole milk powder prices soared to around 4,250 dollar a tonne in March 2021, and later fell to 3,500 levels. However since August prices are again climbing up.
WMP contract for October delivery (without freight and related charges) have already climbed back up to 3720 dollar according to Global Dairy Trade, an industry portal.
The US Fed was also firing a Powell Bubble pushing up prices of commodities, energy, precious and base metals.
Classical economists had said Fed Chief Jerome Powell, who was printing around 120 billion dollars a month was ‘delusional’ for calling the commodity price boom ‘transitory’ and dismissing any link with rapidly expanding money supply.
Powell had unremunerated excess reserves, a key safeguard that had earlier protected the US credit system from the worst effects of Keynesian liquidity injections. (Colombo/Sept19/2021)