European tomato and American water
View(s):One of my students – Shalini did her undergraduate research work a few years ago under my supervision. As she had an interesting research topic and findings with policy relevance, I thought of discussing that today.
Chinese tourists enjoying a local meal at a restaurant.
Shalini’s research was about food and beverages served in tourist hotels in Colombo. She had surveyed 20 hotels falling under star categories and found that a significant portion of food and beverages served in tourist hotels was import-based! This might be shocking news at least to some of us.
We want our tourist hotels to buy our own produce and serve at their restaurants as it would lead to many good things which we think as “good economics”. We would argue that it would promote our domestic production. It would improve our farmers’ incomes. It is good to feed tourists with our own food and drinks when they are here, and they may find it tasty.
After all, it would save our hard-earned dollars – why would we waste it to import food and drinks, when we have such delicious tropical food and drinks? Despite all good things about serving local food and drinks at tourist hotels, to a great extent they continue to depend on imports – why? Shalini also had the same question, when she started her research work.
Increased tourist arrivals
The research shows that the import content of food and beverages was higher in the hotels with higher star-grade so that the five-star hotels had the highest import content, while the lower star grade hotels had lower import content.
It was a time when foreign tourist arrivals were rising fast. During war-time, about less than half a million tourists a year came to Sri Lanka. And they were also mostly from our neighbouring countries. Tourism sector including the hotels’ business was doing so badly.
A few years later, it was a totally different story: Tourist arrivals have increased more than four times. And the tourists from Europe have increased rapidly again. Over 1 million tourists from Western Europe are same as 1 million tourists from Asia.
As a result hotels started doing well. They had to increase their meals at restaurants to serve increased tourist arrivals, which means increasing demand for food and drinks. And it generated more imports from other countries and more spending of foreign exchange to buy this.
Better quality
Food and beverages analysed in the research were categorised as follows: Meat (such as beef, pork, and mutton), poultry (such as chicken, duck, and turkey), fish varieties, fruits (fresh and canned), vegetables (fresh and processed), cereal grains (including rice), dairy products (such as cheese and butter), and drinks (such as water, soft drinks and liquor).
There was no single, common reason to depend on imports rather than local supply to meet the food and drinks requirement in the hotels. The reasons are different among various food categories, while there were both supply-side and demand-side reasons.
The quality difference has been one of the major reasons that apply to a wide range of food and drink varieties. If it is meat, poultry or dairy products, it is not just the processing, packaging and preserving, but also the inputs including animal feed have been the multiple sources of quality that determines their international quality.
Even though there are local substitutes, they are not perfectly matching substitutes, while the international customers know the difference. As the tourism industry has to maintain its international competitiveness, it is safe for hotels to depend on imports from reliable suppliers from abroad.
Price and quantity
For some of the food and drink, the price of imports is more competitive and more consistent than the price prevalent in the local market. The point is that price is not only cheaper, but also in comparison with quality it is competitive. Local prices fluctuate frequently so that it is difficult for hotels to adjust their meal prices frequently, which is anyway not a good strategy.
The quantity matters too. A regular supply of the required quantity of food and drinks is necessary to run the business smoothly. It is not possible to disappoint the guests due to non-availability of their favourite dishes in the hotel industry. It is questionable as to what extent a regular supply at a constant price can be guaranteed, when you depend on local supply sources.
Competitive local supplies
Sea food has a different story as hotels depend on domestic supply due to freshness and the availability of tropical varieties. However, there is another factor: Most of the seafood varieties are from the ocean so that there is no need to worry much about ‘human intervention’ in feeding fish wherever the supply comes from.
Hotels do import some seafood varieties due to non-availability in the local market as well as better processing abroad. Another area where hotels do purchase from the local suppliers or directly from producers is the fresh fruits and vegetables.
In fact, there are some local products which are better than their imported substitutes: For instance, local potatoes, if regularly available, are better than imported potatoes as they last longer and are soft in texture. But some of the vegetables such as cauliflower, broccoli, and Brussels sprouts are better to buy from abroad. It might be surprising news to find that even leafy vegetables like kankun sometimes come from abroad.
Consumer preference
Some of the international consumers seek their own brands and the products that they are used to eat and drink, including water. Hotels always prefer to meet the needs of their guests so that they are ready to serve them as much as possible taking note of their own demand.
Some customers are brand-conscious so that they always seek their particular brand of food and drinks. It may not be possible for a hotel to satisfy all what they need, but hotels prefer to serve the guests better.
It is interesting to find that even foreign mineral water varieties like Perrier, Volvic and Evian are imported from the US and France, mainly because of the demand from some of the tourists.
Sauce from imported tomato
The source of food and drinks at hotels, whether local or imported or both and to which extent mainly depend on the clientele the hotels serve. Because higher grade hotels such as five-star or four-star cater to a high-spending international clientele, these hotels mostly provide a wide range of international dishes which require imported food and beverage. Inclusion of large quantities of imported items in the hotel restaurants results in high pricing, but these prices are affordable to the high-spending clientele they serve. For such hotels it is risky to depend on local supplies without ensuring the quality, variety, price and availability as well as convenience of preparation.
I remembered a valid question that a politician raised at a conference in Kandy some years ago, blaming a company that used to import tomato from Europe to make tomato sauce: “Tomato produced by our farmers is rotten and thrown away sometimes without buyers, while we import tomato from Europe to make tomato sauce!”
I had to answer the question: “A company that makes tomato sauce needs a tomato of standard quality – same variety and same size, mature and ripe to the same level, same quantity supplied regularly throughout a year at a given price and, delivered at the doorstep of the company; how many farmers are there in Sri Lanka to enter into a forward agreement with the company to supply tomato as such?”
This sector is a policy issue for any government to get involved in.
(The writer is a Professor of Economics at the University of Colombo and can be reached at
sirimal@econ.cmb.ac.lk)