Food costs and availability are the keys to security.
By Ravi Ratnasabapathy
Rice has been cultivated in Sri Lanka for over a thousand years, perhaps as far back as 800 BC. It is the staple of the diet and historically its cultivation was seen as a part of a way of life, rather than merely an economic activity.
With such a long history, it is not surprising that its importance still ranks high in the imagination, even while its economic significance has receded. In 1950 agriculture accounted for 46.3% of GDP and engaged around half the labour force, it now contributes only 7% of GDP and employs 28% of the workforce.
Although the term food security was not clearly defined in the past; policy makers have generally associated food security with self-sufficiency in rice. In the post-independence era, much like many other countries in South and South-East Asia, Sri Lanka followed policies to achieve self-sufficiency in food, principally rice. By 1985 the country was 90% self sufficient in rice.
The philosophy of self sufficiency guides policy even today with the objective shifting towards supplementary food crops such as onions, potatoes, chilies, maize, green gram, soya bean and cowpea.
People may be surprised to learn that although Sri Lanka is considered to be the richest country in South Asia, a recent study by the Institute of Policy Studies reveals some alarming facts.
Based on the FAO statistics, the level of calorie deficit in Sri Lanka, 192 Kcal/capita/day on average in 2014-2016, is the highest in South Asia. With regard to the prevalence of undernourishment, Afghanistan (26.8 per cent) is the only country that is worse off than Sri Lanka (22 per cent) in South Asia. Moreover, Sri Lanka (29 per cent) is only trumped by Afghanistan (36.6 per cent) and Pakistan (30.5 per cent) in South Asia, with regard to the prevalence of food inadequacy (IPS).
Despite government encouragement to farming by the fertiliser subsidy, price controls for the consumers, loan programs and property right restrictions that discourage land transfer for non agricultural uses; food insecurity appears to have increased.
Over time, the concept of food security has changed. The World Food Summit in 1996 set a new definition of food security: it is achieved “when all people, at all times, have physical and economic access to sufficient, safe and nutritious food”
It is important to note the multi-dimensional nature of food security, no longer is food security limited to food production; it must include food access, availability, food use and stability.
Availability is determined by food supply but a country need not achieve self-sufficiency in food to achieve food security as long as it has the capacity to import its food requirements reliably. Food security is not synonymous with self-sufficiency and the attainment of food security does not require the realisation of self-sufficiency.
Accessibility depends on the capability to purchase food which in turn is dependent on the factors of income and cost. Food prices are one of the most significant sources of increases in cost of living in Sri Lanka. Food and non-alcoholic beverages account for 34 percent of total household expenditure (Department of Census and Statistics in 2012/13).
A report (Food Price Increases in South Asia-World bank 2010) notes that Sri Lanka seems to suffer from high food price inflation. “As in other South Asian countries, non food price inflation in Sri Lanka used to be higher than food price inflation. However, after mid 2006 this situation reversed and food price inflation substantially exceeded non food price inflation.”
In this context Sri Lanka’s policies of taxing food imports seems to work against food security and public welfare. Food taxes contribute around 4% of the Government’s revenue and includes many basics such as potatoes, Bombay onions, garlic and green gram (all taxed at Rs.40kg), crushed chillies (taxed at Rs.125/kg), cooking oil (taxed at Rs.130/litre) and many others besides.
The tax level is significant, especially on many basic food items and this contributes to high retail prices. The taxes serve a dual purpose, earning revenue for the Government on one hand and providing protection to domestic industries.
The protection is generally justified on the grounds of promoting local production but in the case of wheat, protection is even extended to domestic processors of imported wheat grain.
Sri Lanka does not even grow wheat as its climate is unsuitable and all requirements are met by imports. Wheat is the second most important cereal consumed after rice and its importance is growing as consumption is increasing, driven by lifestyle changes due to urbanisation, increase in the number of working mothers and the demand for convenience foods.
A high tax applies on wheat flour (effectively around 85%) while a lower tax (effectively around 23%) applies on wheat grain. This results in a high effective protection for domestic wheat millers who import the grain and grind it to flour.
The millers are able to earn a significant excess profit due to the differential in taxes between grain and flour. The local millers are able to sell flour at high prices because the duty keeps the price of imported flour high. The apparent anomaly is no accident but the result of lobbying by industry groups to protect local industry.
The tax allows the industry to earn a higher than normal profit- in economic terms described as a “rent”. A paper by Karunagoda et al (Sri Lanka – Agricultural trade policy issues) notes that “as a result of these pricing and tariff policies, domestic prices of wheat flour and related products have been higher than the world market prices – thus penalizing consumers and undermining the GoSL’s designation of wheat as an essential food item”.
Take the case of maize and soybeans, two crops not particularly suited to Sri Lanka and used as the principal ingredients of poultry feed. Taxes on maize (90%) and soybean meal (45%), ensure tidy economic rents for producers but result in high retail prices of chicken.
People would be stunned to discover that chicken is actually cheaper in Singapore (around Rs.400.kg) than in Sri Lanka (Rs.425/kg). Chicken breasts cost Rs.464/kg in Malaysia but Rs.754/kg in Sri Lanka.
Rents also accrue to the dairy industry due to prohibitive taxes on products like butter (Rs.880/kg), yoghurt (Rs.625/kg) and cheese (140%).
The Government’s policies work against concepts of food security and consumer welfare. The FAO emphasizes addressing cross-cutting issues to improve affordability. Even the Government’s own National Strategic Review of Food Security and Nutrition Towards Zero Hunger (2017) admits as much. “The nominal prices of all food commodities show an increasing trend and this is attributable, on the demand side, to increasing food demand given the growing population and income, shift of consumer preference, and the net taxation of the food sector.”
This is particularly harmful to poorer segments of society. Lower-income families spend less on food than higher-income families but the money that they do spend comprises a larger percent of household income. Urban families spend 27.06% of their household income on food but rural families spend 36.15% and estate families, the poorest segment of society spend 48.41%.
A proposal to abolish food taxes entirely would benefit the general population but would be unappealing to policymakers who find the food taxes a useful source of revenue. Nevertheless, given the increase in consumer prices, it is something that must be considered seriously- alongside cuts to unnecessary expenditure, waste and corruption.
For more essays and information on food taxes and please refer the Advocata research page on http://www.research.advocata.org/
