Sri Lankaâ€™s price controls ineffective: Advocata
ECONOMYNEXT – Price controls set by the Sri Lankan government do not benefit consumers or traders, a recent report released by The Advocata Institute, a think tank, said.
Instead of simply providing price or tax support to traders, the government should focus on improving productivity in local production, particularly agriculture, and encouraging competition, said Ravi Ratnasabapathy, Resident Fellow at Advocata Institute.
This will bring prices down more effectively than price controls, he told a news conference.
The report titled ‘Price Controls in Sri Lanka: Political Theatre’, points out that of price controls set on 13 basic groceries, 12 were ineffective, and products were retailing above the control price.
A survey conducted by Breakthrough Business Intelligence, a marketing research agency, revealed that 46 percent of wholesalers and 67 percent of retailers temporarily adjust prices when raids are carried out, and increase prices later.
Furthermore, 34 percent of wholesalers and 62 percent of retailers said that they would rather pay a nominal fine than stick to price controls.
The report also pointed out the lack of knowledge among customers and traders on government imposed price controls.
“If you really want to enforce controls you need to start with a list of prices that are displayed at every outlet. Instead, nobody has a list of control prices,” said Ratnasabapathy.
The Consumer Affairs Authority website only has an outdated, incomplete list, he said.
Smaller traders also went unchecked, with only larger companies and multi nationals being checked regularly for compliance.
Price controls were probably designed this way, because if a tough set of price controls were implemented you could see negative effects, such as shortages, coming in to place, said Ratnasabapathy.
However, the setting of these ineffective price controls have resulted in temporary halting of the sale of products and lower quality, cheaper goods making it into the market.
A study conducted by Advocata showed that small tea and hopper shops simply stopped selling these items for a few months when controls were imposed, and then went back to selling above control prices.
Quality drops were seen mainly in the agriculture sector, with recent raids having happened in Karagampitiya after detecting rotten vegetables and potatoes, and in Dambulla over substandard cooking oil.
Traders have also admitted to disposing low quality onions and potatoes that were rejected by supermarkets in informal markets and to food processors.
Ad hoc changes in price controls and taxes also stop long term supply contracts and relationships from being formed.
A supermarket that was trying to form a long term forward contract with suppliers to get better prices, had to break the agreement one month in, due to a change in taxes, said Ratnasabapathy.
(COLOMBO, 10 October 2018)