Danger of knowing a little
View(s):There are many dairy farmers in Tissamaharama who have got cows for milking in their home gardens. These farmer families used to milk the cows every morning and to bring that milk to the collection centres. The milk sold there were then transported by bowsers to a milk factory in Nuwara Eliya. In the manufacturing process at the factory, its water content is removed through spray drying and “milk powder” is produced and packed for the market. Thereafter, milk powder packets are transported to Colombo for storage and distribution. Part of that, of course, goes back to Tissamaharama as well. The farmers who sold fresh milk now go to grocery shops and buy milk powder. They add water to it, prepare milk to drink and, feed their children.
The above story of dairy farmers was part of a political speech on economic policy-making which I also had the opportunity to listen to. It was at a conference session on the need for a new development policy. Without exaggeration, there was loud laughter and a big applause in the conference hall. Those who were slumbering by listening to boring economic speeches were also awaken and stirred up.
Some participants in the audience must have been convinced and thought: What an enlightening disclosure of an absurd economic value chain! The process in the value chain is just a waste of time and resources.
Milk and milk powder
It is true that milk in powder form is popular in some poor countries, but not in rich countries. People in rich countries drink pasteurised fresh milk not powdered milk. You don’t even find milk powder in the market. If they happen to produce milk powder, then it is just to export to those poor countries which love it.
In some cases, milk powder has been changed to the extent that there is actually no real milk in it. As I have heard, milk fat is also substituted with some other fats.
In other cases, though we used to call it milk powder, it is in fact, “tea whitener” or “coffee whitener”.
Attending a conference at the Lahore School of Economics in Pakistan in March, I met Professor Talat Naseer Pasha, Vice Chancellor of the University of Veterinary Sciences in Lahore, who had won a court case against “tea whitener” marketing in Pakistan.
All these are issues for concern. But, having listened to the story of “milk from Tissamaharama”, the question that I had was a different one: What kind of national economic policy is it leads to this kind of development? What kind of economic objectives would we try to achieve? After all, the conference was about a new development policy.
Break the value chain?
If the story was brought with a sincere motive to design new economic policies for good, what could they be? If we think of a policy or regulation to break that value chain which looks “absurd”, what would be its consequences? Would it lead to an increase in income? Would it create more jobs? Would it reduce poverty? Probably, all these things might be worse than before.
If the milk value chain is broken, there will be excess milk in Tissamaharama without demand. Farmers will have to slash their milking activity so that their incomes from milk supply will fall too. Probably, it will increase rural poverty among the farmer families whose income came from milk industry.
There will be no collection centres, no milk transportation, no milk processing, no milk powder storage activities, no distribution and marketing; all these economic activities along the “milk triangle” – Tissamaharama, Nuwara Eliya, Colombo, are bound to cease. Many people in the milk value chain will lose their jobs and incomes, adding to further increases in poverty levels.
Small dairy farmer
Milk will be a luxury food item for some households in some parts of the country, because there will be no milk supply and distribution in either way. Nutritional standards of such families might fall with further additions to poverty.
Milk will be expensive too. When milk becomes an expensive luxury food item with a supply shortage, naturally it will be taken away from the poor.
Fresh milk is better
Someone can still argue that at least the policy would ensure that people will be compelled to drink fresh milk just from cows! Let me give you a surprising information. According to Prof. Rev. Wijithapure Wimalaratana Thero from the Colombo University who has carried out extensive research on Sri Lanka’s historical consumer patterns, milk was quite alien to us.
We Sri Lankans as a nation haven’t got used to drink milk in our history; drinking milk was not part of our culture. Historical evidence suggests that Sri Lankan people, unlike in our neighbouring countries, were not used to drink milk; they had milk only for specific reasons such as sicknesses. In fact, this is the reason why during colonial times it was easier to introduce milk powder than fresh milk to Sri Lankan consumers.
Moving the economy
Sri Lanka’s major development policy objectives are directly or indirectly related to higher income growth, job creation and, poverty reduction. Yet, the economic policy discussions aimed at achieving these objectives are almost non-existent in our political arena. While most live discussions are all about “politics”, the economic discussions are on petty issues such as the one elaborated in the story of “milk from Tissamaharama”.
Subsidies, tax relief, import duties or government support or any other petty issues in similar nature would not drive the economy anywhere near the way we like to see it going. All these might be “politically correct” as some may think and act in that way. But the Sri Lankan economy at its current juncture has to go somewhere rather than going nowhere.
The most fundamental to all economic objectives is “the higher economic growth and its long-term sustainability”. It’s no surprise that Sri Lanka was never in this position of growth throughout its post-independent history of 70 years. If it were, we would have noticed it clearly with our annual rates of economic growth.
Medium-term economic outlook
According to the latest growth forecast of the World Bank, the South Asian region will be the fastest growing region in the coming years, but Sri Lanka will have dismal growth performance. Sri Lanka is expected to grow at 4.8 per cent in 2018, and 4.5 per cent in 2019 and in 2020. In fact, the other two countries that are expected to perform as poor as Sri Lanka in this sector, are Afghanistan and Nepal!
South Asian average growth rates are expected to be around 7 per cent for the same years, while the highest contribution to the regional growth performance will emanate from rapid growth of India.
Some people believe that Sri Lanka will have at least crumbs falling from the tables of high-performing countries in Asia. In fact, that is exactly what our Asian growth outlook also reveals. About 4 – 5 per cent rate of annual growth of the country is not a home-made growth outcome.
If Sri Lanka’s growth performance is forecasted to be that low, shouldn’t we focus more on the fundamental issues that hinder growth performance than anything else now?
Accelerating growth performance
Higher growth comes from private investment at the origin and, global market at the destination. In an economy where minor economic matters have received the supreme position, investment would not grow. We hardly talk about the issue of private investment.
Rapid growth of an economy requires global markets because the local market is too small. We hardly talk about the expansion of our global market access which has to be only through trade liberalization. Despite rhetoric, Sri Lanka is no more an “open economy” as it used to be.
It is necessary for the country to leave the petty issues aside and, first get the development fundamentals right.
(The writer is a Professor of Economics at the Colombo University)