Competing interests of trade and agriculture
by Neville Ladduwahetty
It has been reported that with India extending its ban on onion exports until March next year to increase the availability of onions in the domestic market and to keep their prices in check, Sri Lankan importers are in a quandary to meet the local requirements. Sri Lanka reportedly imports around 20,000 tonnes of onions a month.
The coconut Industry faces a similar challenge. A report published by The Sunday Times of 10 Dec., 2023 under the title, “Imports weigh on producers” says: “If the coconut oil sector is to survive, then imports need to be taxed to protect the local millers and producers. At present Sri Lanka is importing 2 billion nuts equivalent in oil, and this year as well, about 65% of the local consumption has dropped due to the increased poverty rates …. Sri Lanka had been exporting large volumes of coconut oil, and for this purpose, the tanks in the Colombo harbour were made available in the late 1980s … However, today, these same tanks are being used to store large quantities of edible oil imports when they arrive at the Colombo harbor”.
“The imports have affected the farm gate price, which is currently at Rs. 45 per nut, but at retail, a coconut sells for Rs. 150…. As a result, authorities have proposed a higher tax and duty on edible oil imports…. It is learnt that although the CDA has the authority to determine the amount of edible oil imports, this is today handled by the Treasury and the Trade Ministry. As a result, large volumes of edible oils are imported at low prices” (Ibid).
With the introduction of an 18% VAT on coconut-based products, “the industry queries whether the authorities are keen on assisting the industry or simply killing it. This concern was raised last week with plantation Minister Mahinda Amaraweera” (Ibid).
COMPETING INTERESTS of DEMAND and SUPPLY
The two examples cited above clearly demonstrate what happens when the interests of the Ministry of Trade clash with those of the Ministry of Agriculture. The reason for such clashes is the systemic shortcomings in the structural arrangements to coordinate their respective activities in a manner that promotes the national interest. Under such circumstances, the challenge for any government is to adopt policies to meet shortfalls in supply by developing local capabilities at least to meet the domestic demand instead of resorting to imports. Given the current financial situation in Sri Lanka, such an approach is imperative to protect the livelihoods of the people as well.
To achieve such an objective, there should be a proper interaction between the Ministry of Trade and the Ministry of Agriculture as well as other related Ministries when decision are made on what and how much should be imported to meet demands in a manner that does not undermine the plans of the Ministry of Agriculture to achieve self-sufficiency. The much-needed coordination and interaction among ministries are not likely to take place unless a structural arrangement is set in place to ensure positive results.
Poor coordination between the Ministry of Trade and Agriculture relating to import of items from India under an Indian Line of Credit was highlighted in an article titled, “Pros and cons of loans on lines of credit” (The Island, Dec. 1, 2023).
“Although the Introduction to the Indian Line of Credit states that it is to “import essential food items, essential pharmaceuticals and raw materials for local industries from India”, the task of identifying the items to be imported is left to the “Ministry of Finance together with the Ministry of Trade.
“However, it is the Ministry of Trade under Section 3.2 that “sets out the Committees Established under the Ministry of Trade for this facility a) Main Committee to select importers and Imports 3 b) Subcommittee to provide recommendations to the main committee on essential food items/ animal feed c) Subcommittee to provide recommendations to the main committee on essential pharmaceuticals d) Subcommittee to provide recommendations to the main committee on cement, apparel, special fertilizers and raw material for industries”. This procedure confirms that the onus of deciding what items to import lies entirely with the Ministry of Trade.
Although no opportunity is missed to write about, speak about or conduct seminars on good governance or structural reforms, the example cited above shows that decisions are made and priorities established in a vacuum with no regard to overall national interest. With the ban on export of onions from India, one would not be surprised if importers are allowed to import onions from whatever sources and make them available at higher prices to satisfy the demand regardless of the impact of such measures on the local producers.
Such a policy is unacceptable. An alternative could be to ban import of onions to Sri Lanka. As a result, the prices will escalate beyond the reach of the average citizen. In such a situation, the ensuing demand for locally-produced onions would encourage local growers to produce more until there is a balance between supply and demand.
An alternative could be to introduce a subsidy to the producer in order to make onions affordable to most. Since this would be in rupees as against the dollars needed to import onions and meet demands despite the high cost to the consumer, it would be a viable option. However, the disadvantage of such an alternative could be that the grower may become complacent and enjoy the fruits of high prices without increasing production.
Whatever the policy adopted in respect of onions as a result of the ban imposed by India, the principle of such a policy based on banning the import of products should be extended to other agricultural products if Sri Lanka is to become independent of imports.
CONCLUSION
The ban on onions imposed by India should be considered a blessing and an opportunity to develop a joint policy between the Ministries of Trade and Agriculture instead of importing onions to make up shortfalls. Such a policy should not be limited to onions. Instead, it should extend to all other products that could be cultivated in Sri Lanka.
Therefore, it is imperative that the Ministry of Trade explore policies that go beyond the narrow scope of fulfilling demand and extend its horizons jointly with the Ministry of Agriculture if the national interest is to be served.
The government’s policy is to focus on a “competitive export-oriented economy. Such a policy entails developing external markets that in turn may require importing certain items, meeting global standards in respect of quality, packaging etc. Consequently, catering to an export market is limited to a capable few. On the other hand, the inputs required to reduce imports would be much less since the effort would not only be locally driven and therefore within Sri Lanka’s control and free of global vulnerabilities, but also open up opportunities for many more producers to engage. The reduction in expenditure would enable more items to be exempted from VAT, etc.
This means that while the pursuit of export markets is undertaken by a capable few, the emphasis should be on the reduction of imports. Since such a shift amounts to a complete reversal from an export-oriented policy to one of reducing imports, the government and the Think Tanks should seriously consider this shift in policy.
