Government attempting to introduce pricing formula for flour retail
The Consumer Affairs Authority (CAA) is trying to strike an agreement with wheat flour producing companies for a pricing formula after the regulator started negotiating with them.
Currently wheat flour is a controlled item. CAA officials told the Business Times that the Cost of Living (COL) Committee and the Cabinet have recommended a pricing formula for wheat flour instead of the current controlled price. The CAA sets maximum retail prices (MRP) for essential consumer items. Items subject to MRP include lentils, chickpeas, wheat flour, dried chili peppers, canned fish, milk powder, sugar, imported basic variety of rice, imported onions and imported potatoes.
The idea of a pricing formula for wheat flour was pre-empted by the companies increasing prices twice earlier. The official said that the CAA did not want wheat flour producers to increase the prices. As a result the companies had sold unpacked or ‘loose’ wheat flour at retail shops.
This came to light when certain customers noticed some supermarkets recently selling ‘loose’ flour at Rs. 87 per kg. Packeted flour, which was usually sold at between Rs. 110-130/kg, was not available at such outlets during the past few weeks. Loose flour was previously not available at most supermarkets – virtually none. Upon casual inquiry from supermarkets it has been stated that there is an ongoing dispute between the CAA, Government and flour companies (mainly Prima and Serendib) as they couldn’t agree on a pricing formula. A high tax is applied on wheat flour (effectively around 85 per cent) while a lower tax (effectively around 23 per cent) is applied on wheat grain. This results in a high effective protection for domestic wheat millers who import the grain and grind it to flour.
“The CAA, COL committee and the flour producing companies had a meeting recently on this. They positively participated and we agreed to resolve the issues, ” an official said.
Millers earn a major surplus profit (called “rent” in economics) due to the discrepancy in taxes between grain and flour. The local millers sell flour at high prices because the duty keeps the price of imported flour high. The obvious irregularity is due to lobbying by industry groups to protect the local industry.
The official stressed that the job of the CAA is to protect the consumer while not killing the trader. However, flour producers say that their job can be done better. “Although the price is decided on international commodity prices, it does not apply in Sri Lanka. The price is controlled by the Government, therefore there is no flexibility in the pricing mechanism,” a producer said. The CAA official stressed that flour producers don’t reduce their prices when international prices are low. World wheat prices (along with other commodities) have fallen 50 per cent since 2013 but the price of bread in Sri Lanka keeps rising.
Wheat is the second most important cereal consumed after rice and its importance is growing as consumption is increasing. The country’s wheat flour consumption pattern has grown to 60,000-65,000 of metric tonnes a month, according to data from last year. About 75 per cent (562,000 metric tonnes) of wheat flour is produced by Prima mill owned by a Singapore firm and 25 per cent (about 187,000 metric tonnes) is produced by Serendib Flour Mills.