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Sri Lanka & Somalia

Jul 31, 2011 11:46:00 AM - thesundayleader.lk

IMF Resident Representative Dr. Koshy Mathai made an interesting observation at a seminar in Colombo the other day.

He said that the price of milk here was the same as in the USA. In effect Third World Sri Lankans are paying First World American or US prices for their milk (whether it be powdered or liquid milk the prices are the same according to Mathai), an essential commodity for babies and children!

Whether this distortion is due to a lack of local production and the reliance on expensive imports is a matter for the authorities to investigate and come up with an expeditious solution.

President Mahinda Rajapaksa in his various election promises, stemming from his successful 2005 Presidential bid, assured free milk, free nutritional supplements; to schoolchildren, lactating mothers, et al if elected to power; but one wonders how many of those pledges that he made to the electorate six years ago, has been kept?

USA is a US$ 50,000 per capita GDP income economy whereas Sri Lanka is a mere US$ 2,000 per capita GDP income economy, one twenty fifth of that of the USA’s.

That means that though the average American is 25 times richer than the average Sri Lankan, yet the price of milk in the USA is the same as in Sri Lanka; not 25 times more expensive, or for that matter not even double that of Sri Lanka’s!

This column is not advocating that milk in the USA should be more expensive than in Sri Lanka.  But if milk prices serve as a catalyst (though in reality that may not be the case) to compare prices in the USA and Sri Lanka, it’s also a reflection of how much of disposable income the average American has compared to that of an average Sri Lankan.

An American whose income is 25 times greater than that of a Sri Lankan finds milk prices in the USA to be the same as that in Sri Lanka.

In that context how relevant are the recent changes made to the weightages in the inflation measurement basket by the state controlled Census and Statistics Department (CSD) which is mandated to calculate inflation, where the weightage given to the food basket has been reduced and others increased on the basis that Sri Lankans now have greater disposable incomes?

The reality may be different to the assumption.

Does it mean that Sri Lankans now have greater disposable incomes, that, ipso facto the percentage of the income they spend on food has been reduced, the reason for this change to be made by CSD in its inflation measurement basket?

Looking at it from another perspective; how may a consumer in poor Sri Lanka live or survive when the prices of goods and services that he consumes are similar to the prices prevailing in the USA, the world’s richest country?

USA is also the world’s largest economy in GDP terms, so this seeming distortion in milk prices, where one would have had expected milk prices in the island to be cheaper than that in the USA, is however not the case.

That distortion surprised Mathai, in as much as it surprised me, I do not know whether it also surprised or shocked the rest of the audience, as it did Mathai and I?

The wealth of the people of a nation which is 25 times more than that of Sri Lanka’s and yet where the prices of goods and services are the same, and not more expensive than that of the island’s (if the “milk” story may be applied across the board, though that may not be quite accurate), is also a reflection of the vastness of the spending power of that nation’s citizens compared to that of Sri Lanka’s.

A search in the internet revealed that the average per capita GDP income of a Somalian (a lawless country that is currently in the grip of a drought and its people facing starvation) is US$ 333 or a  sixth of that of an average Sri Lankan’s per capita GDP income of US$ 2,000; according to the Central Bank of Somalia.

The question however is whether those figures are applicable now with the problems that Somalia is facing and the possibility of its per capita GDP income having had fallen further as a result.

Howbeit, if those numbers still hold, there may be a justification in comparing Sri Lanka’s prices  vis-a-vis that of the USA’s and of Somalia’s, where, one country is 25 times richer than Sri Lanka, while the other on the other hand is six times poorer (or Sri Lanka is  six times richer, depending on the way one looks at it), the common denominator  being the comparison of milk prices, though, admittedly, if such comparisons are applied across the board, it may have its distortions.

Camel’s milk is a more popular liquid than cow’s milk in Somalia, where the retail price of a litre of camel’s milk works out to Rs. 42 according to the internet.

In Sri Lanka, a litre of sterilized cow’s milk retailed by the Government, or more appropriately by one of its agencies Milco is three times more, at Rs. 120 a litre.

So, though Sri Lanka’s per capita GDP income is six times more than that of Somalia’s, the island’s milk prices however are three times more expensive than that of the latter’s (forget about whether they be camel’s milk or cow’s milk, that may be immaterial in this comparison, a number of countries in Sub-Saharan Africa’s preferred milk diet is camel’s milk).

But, ipso facto it does not follow that though the USA’s per capita GDP income is 25 times more than that of Sri Lanka’s, that its milk prices are 12 times more expensive than that of the island’s, if a correlation may be drawn vis-à-vis comparable milk prices in Sri Lanka and that of Somalia’s and relate it to the Sri Lanka-US context on the basis that Sri Lankans are six times richer than the average Somalian, following which average milk prices in Sri Lanka are three times more than that in Somalia.

Therefore, as the average American is 25 times richer than the average Sri Lankan, ipso facto applying the Somali situation, milk prices in the USA should be 12 more than that in Sri Lanka; but it doesn’t happen that way.

Putting it another way, the advantage that the Americans have, that though their per capita GDP income is 25 times more than that of Sri Lanka’s; milk prices in the two countries are however static; ie that asymmetry in the wealth of the people’s of those two countries are however not reflected on milk prices; unlike in the case of Somalia vis-à-vis that of Sri Lanka’s.

Though Sri Lanka’s per capita GDP income is six times more than that of Somalia’s, the island’s consumer however does not have the same cost advantage, ie of finding milk prices in Sri Lanka to be the same as that in Somalia’s; but, rather, Sri Lanka finds itself in the unenviable position of having milk prices which are three times more expensive than that of Somalia’s.

Mathai in that lecture emphasized the importance of milk, particularly in the context of his being a father of a young and growing family and the nutritional importance of that liquid diet to children.

Another unenviable record that the island has to its discredit is its high levels of malnourishment; higher than that of Sub-Saharan Africa (is it also higher than the now starving Somalia, I wonder?) according to World Bank statistics!

From another viewpoint, it may be no incentive for an American with his dollar salary to spend his holiday here, or for that matter for an American pensioner to also do the same, when the prices here are equivalent to that of the USA’s, if the milk price analogy could be applied across the board. Somalia may be a cheaper option than Sri Lanka! (that’s a pun, considering the lawlessness prevailing in that country).

However there may be other cheaper and safer options for the American to consider in his travel sojourns than Sri Lanka; having said that, the island’s key tourism market is however the EU with the USA trailing far behind.

Another Indian (Mathai too is an Indian, though domiciled in the USA), Pankaj Akhauri, Chief Operating officer Timex BPO (Pvt.) Ltd., told me the other day that the reason why Americans don’t like to travel abroad is because they are not sure whether they would enjoy, or have the same level of comfort as they have at home, overseas?

What incentive is also there for an American to visit Sri Lanka when there is also no price advantage in the procurement of goods and services here when compared with that in his own home country the USA as compensation for lesser creature comforts?

This however does not take into account the new cultural experiences and other things that he may not have the privilege of seeing or experiencing by not visiting Sri Lanka. But probably all of those advantages may be negated when Mathai, seemingly looking at Sri Lanka from American eyes termed Sri Lanka’s infrastructure facilities, particularly its roads as being horrendous, though not exactly in the same words (see this newspaper’s last week’s business page lead).

Those too are not an incentive for an American to visit the island, leaving aside the “no cost advantage” from a goods and services perspective that he may enjoy by visiting Sri Lanka, when those prices are the same as that of his home country (and not cheaper) despite the USA being several times richer than the island.

Mathai in his speech touching upon Sri Lanka’s high food prices asked the rhetorical question as to whether that is due to high post harvest losses complemented by poor refrigerator and cooling facilities?

Those are questions that a foreigner should not be asking (but Mathai may be an exception, he is now “half” Sri Lankan as his wife is Sri Lankan!), but are questions that the authorities should not only be asking, but at the same time try to seek sustainable solutions to the same.