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Thursday June 8th, 2023

Sri Lanka’s egg price controls hit two generations of chicken

ECONOMYNEXT – Sri Lanka’s egg price controls have hit two generations of layer chicken, triggering a collapse in both layer and parent bird populations, an industry official said as the country grapples with the worst currency crisis in the history of its central bank.

Sri Lanka’s daily egg output is estimated to have dropped to about 4 million a day from the normal 7 million after farmers killed layer chicken for meat in the wake of price controls imposed by the Consumer Affairs Authority.

In the Christmas season when a demand for cake and also tourism picks up another 15 to 20 million eggs are demanded, which leads to a rise in price in all years.

Eggs packed in trays sold for around 65 rupees or more in super markets in December, while many small groceries stopped selling eggs at lower prices without packaging fearing raids by the CAA.

The boiler chicken industry, which was free from price controls has recovered as soaring prices of around 1500 to 1700 rupee a kilo incentivized farmers to grow more chicken while layer chicken were sold for meat, in the past quarter. Prices are now down to 1100 (live birds) to 1400 (frozen).

A court order has suspended the price control order until February. Price controls trigger shortages and also black markets if supply is not killed in the first place.

COERCIVE POWER: The Consumer Affairs Authority had previously created shortages and black markets in lentils and tinned fish with price controls.

Long Investment Cycle

Unlike broilers which are killed at around 40 days it take around 5.5 months for a new batch of layer chicken to mature, says Ajith Gunaskera, President of the All Island Poultry Farmers’ Association.

To grow a batch of layer chicken to maturity, he says it now takes about 3.5 million rupees, compared to around 700,000 rupees a couple of years before a currency collapse and a global commodity price spike in the wake of Fed money printing.

“Interest rates are now 30 percent so small farmers cannot make the investment,” Gunasekera said.

Coupled with a hike in value added tax, a cascading social security levy that has cast doubt on the ability of the current administration to do simple reforms, as well as the currency collapse has pushed up feed costs.

A 50 kilo bag of layers feed has gone up from around 5,000 rupees before the crisis to around 13,000 rupees now, Gunaskera said.

To bring down the cost of feed it has been proposed that excess paddy be allowed to be used for chicken feed but the Consumer Affairs Authority also banned it by a gazette notice.

The CAA has created shortages and black markets of several foods during the Coronavirus crisis including tinned fish and has emerged as a key threat to food security. The agency disrupted the egg industry and triggered shortages as access to protein has been reduced in the currency crisis.

No Parents

But farmers who now order layer chicks also cannot get them.

“Hatcheries are saying that it will take until March to give the layer chicks,” Gunasekera said.

“There are not enough layer parent stock.”

Sri Lanka needs around 80,000 parent birds to produce the required layer chicks but now there are only around 42,000, a the main hatcheries, according to Gunasekera.

Though Sri Lanka has grant parent farms for broilers, layer parents have to be imported.

As orders for chicks dried up due to price controls, hatcheries stopped importing new parent stocks, and the effect of price controls have reverberating across two generations.

Imported parent stock chicks take about 5.5 months to lay eggs.

“As a solution it has been proposed that Sri Lanka import hatching eggs (fertilized eggs of parent birds),” Gunasekera said.

“But that also has risks of diseases. If approved it will have to be done under strict controls in a few monitored farms.”

The price controls came shortly after a bakery owners association – which raises prices by press conference – called for them.

Over the past few days egg producers have got together to sell eggs at around 50 to 55 rupees.

However with market demand strong due to the shortfall other traders are going to the farmgate and offering higher prices, Gunasekera said.

The price controls and the disruption of the poultry layer sector come as President Ranil Wickremesinghe tries to implement a social market economy.

The social market economy is a term used to describe the post World War II West Germany where price controls were ended and strong controls were placed on the central bank, laying a strong base for producers and consumers to create an ‘economic miracle’.


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Sri Lanka’s shares slip on profit taking and selling pressure

ECONOMYNEXT – Sri Lanka’s shares closed lower on Wednesday after four consecutive gains in previous sessions spiraled into selling interest and profit taking, an analyst said.

The main All Share Price Index was down 0.28 percent or 24.39 points to 8,722.06, this is the lowest the index has been since May 02, while the most liquid index S&P SL20 was down 0.40 percent or 9.92 points to 2,468.44.

“The market was gaining in the previous sessions and there is selling and profit taking present today, due to continuously being on green,” an analyst said.

In the previous sessions the market was seeing gains, due to lowered policy rates and low inflation stimulating buying interest and driving the sentiment up, an analyst said.

Sri Lanka’s inflation in the 12-months to May 2023 has eased to 25.2 percent from 35.3 percent a month earlier according to a revised Colombo Consumer Price Index calculated by the state statistics office.

The central bank cut the key policy rates by 250 basis points to spur a faltering economic growth as inflation was decelerating faster than it projected.

“There are gradual improvements in the market sentiment, with positive sentiments coming in from lowered policy rates and inflation,” an analyst said.

The market generated foreign inflows of 12 million rupees and received a net foreign inflow of 18 million rupees, due to low share prices and discounted shares followed by a dividend announcement.

The market generated a revenue of 554 million rupees, this is the lowest the turnover has been since May 10, while the daily turnover average was 1 billion rupees. From the total generated revenue, the banking sector contributed 120 million rupees, Diversified Banks contributed 115 million rupees and the Capital Goods Industry generated 78 million rupees.

Top losers during trade were Sampath Bank, Commercial Bank and Aitken Spence. (Colombo/June06/2023)

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Sri Lanka Treasuries yields plunge, 12-month down 318bp

ECONOMYNEXT – Sri Lanka’s Treasuries yields plunged across maturities at Wednesday’s auction with the 12-month yield falling 318 basis points, in one of the biggest one day falls, data from the state debt office showed.

The 3-month yield fell 244 basis points to 23.21 percent.

The 6-mont yield fell 339 basis points to 21.90 percent, along with the 12 months to 19.10 percent.

The short-term yield curve is inverted.

The central bank last week cut its policy rate 250 basis points in a signaling move but is not printing money to enforce the rate cut.

The debt office sold all 140 billion rupees of offered securities. (Colombo/June07/2023)

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Sri Lanka forex reserves rise US$722mn in May 2023

ECONOMYNEXT – Sri Lanka’s foreign reserves grew 722 million US dollars to 3,483 million US dollars in May 2023 from 2,761 million US dollars in April, official data showed as deflationary policy and weak credit reduced ‘above the line’ outflows.

Sri Lanka lost almost all its reserve in over two years as the central bank sold reserves and printed money to keep rates down (sterilized reserves sales) including borrowed dollars from India.

Gross official reserves fell to a low of 1,705 million US dollars in September 2022.

Sri Lanka’s central bank hiked rates in April 2022 to slow credit and also stopped printing money after it ran out of borrowed Asian Clearing Union dollars from India.

Sri Lanka’s gross official reserves are made up of both monetary reserves of the central bank and any balances of the Treasury account from loans or grants it gets.

The central bank’s net foreign reserves are still negative after busting up borrowed reserves to suppress rates. By April (before the collection of reserves in May) the central bank’s net reserves were negative by 3.7 billion US dollars.

In May alone 662 million US dollars were bought from the market, Central Bank Governor Nandalal Weerasinghe said.


No pre-determined level to stop Sri Lanka rupee appreciation: CB Governor

Borrowing dollars through swaps and busting them up, was invented by the US Federal Reserve as it was printing money and breaking the Bretton Woods system in the early 1970s.

Sri Lanka received a 350 million US dollar tranche from the Asian Development Bank and 331 million US dollars from the IMF to the Treasury for budget support.

The loans can be sold to the central bank by the government to generate rupees and spend. However, since credit is weak, not all the inflows go out of the country particularly as the central bank is conducting deflationary open market operations on a net basis.

By allowing the rupee to appreciate unlike in previous episodes of recovery in an IMF program, after a bout of money printing, the central bank is bringing down inflation – in some cases absolute prices – and restoring confidence and easing the ‘pain’ of ‘monetary policy’ or stimulus.


Why is Sri Lanka’s rupee appreciating?

Though exports are falling, tourism revenues are also picking up.

The budget support loans, tourism receipts less the reserve collected will widen the trade deficit. Building foreign reserves involves lending money to the US or other western nations and is similar to repaying foreign debt. (Colombo/June07/2023)

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