Traders warn of major price hike

By Isuri Kaviratne

The increase in food prices has shocked the country again with a warning from the Essential Food Commodity Importers and Traders Association (EFCITA), that due to the Special Commodity Tax Act, 2007 becoming non-effective after December 25, the taxes imposed prior to March 1, 2007 on essential food items would be payable.

Association spokesman Hemaka Fernando said that even though the wholesale prices of essential food items were controlled and stabilized by the agreement the EFCITA had with the Government, the public would not have enjoyed the full benefit because the retailer may not have passed the entirety of the benefit from the drop in wholesale price, to the consumer.

From March 1 till end November 2007, the EFCITA had an agreement with the Trade Ministry, renewed monthly, to fix the maximum wholesale prices for ten essential food items - canned fish, big onions, sugar, chillies, red onions, potatoes, chick peas, yellow split peas, red split lentils (Mysoor dhal) and green gram and maintain the lowest price possible.

“Each month, though prices in the international market go up for some of these items, we would discuss with the Ministry and decide on the minimum price and then adjust the wholesale prices of the essential food items for the month,” he said. With the Government’s decision to completely withdraw the concessions made available to private sector importers, duties applicable for these essential food items would be imposed.

Mr. Fernando said that due to the recent imposition of taxes, the wholesale cost of dried chillies would be increased by 25 per cent, yellow split peas by 50 per cent and potatoes by 20 per cent.

“Deputy Finance Minister R. Siyambalapitiya has told the media that no increase in duties had been imposed. That statement is only technically correct. All these food items were subject to the tariff levels that were prevailing before March 1 2007,” Mr. Fernando said.

He said the Government has suffered a revenue loss for the past nine months. But public praise may not have come because of the lack of knowledge the public had about the continuous price increases of these items in the international market.

Mr. Fernando told The Sunday Times that President Mahinda Rajapaksa has ordered the Trade and Commerce Ministry and the Treasury to discuss this matter with the Economic Policy Committee and added that two rounds of discussions have been already held in this regard.

"As a result of his timely intervention the Trade Minister Bandula Gunawardena has today invited the EFCITA members to his office tomorrow, to discuss a settlement," he said adding that that they could expect a tangible settlement which would bring some reductions of the duty payable for these food items, by making the Special Commodity Act effective once again from next Monday.

The Sunday Times learns that the Government has increased import duty on wheat flour up to nearly 30 per cent from the earlier 15 per cent making it impossible for private importers to import wheat flour to compete with the Prima monopoly. However, a retail shop vendor told The Sunday Times that the prices of these food items would probably increase again with the limitation of food item imports when stocks bought earlier run out.

Trade Minister Bandula Gunawardena clarifies.....

The Government came to an agreement with the EFCITA and stabilized the prices of essential food items on March 1, 2007 and as a result, the country lost Rs. 15 billion during the past 10 months, Trade Minister Bandula Gunawardena said. He said to stabilize food prices the Government had implemented a somewhat complicated process for the first time. It was started by gazetting the essential food items and forming an agreement with the EFCITA to settle the monthly wholesale prices of the essential food items. Trade Minister Bandula Gunawardena “There were many taxes like VAT and Social Security levy which the Government abolished and instead imposed a nominal unit tax, which was a very small amount, to import essential food items to the country”, the minister said adding that the prices changed only in keeping with price changes of the minimum prices of food items in the international imarket. Contradicting the statements made by the public and the media that food prices were not reduced, the minister said the prices of all the essential food items, except dhal, were reduced due to the concession given to the wholesale trade. “Prices of some food items are still below what it was before March 2007. For example, dried chillies were Rs. 270 a kilo last February but even now it still remains at Rs. 185 a kilo,” he said. “The public and the media never appreciated what the Government did suffering huge financial losses. So we thought if the public too does not appreciate the relief granted by the Government in terms of reducing the food prices, there would not be any reason to continue with the concession with losses,” he said. The concession expired on December 25 and then automatically the taxes applicable to food items before March 1 would be imposed as there is no mechanism to reduce the tax and impose the unit tax instead.“That’s the reason for the increase of food prices”, he said. Commenting on the increase of gas prices he said that the price of fuel, chemicals and milk powder increased in the world market as no economist had predicted. “It even led to introduction of new terms like ‘agflation’ which referred to an increase in the price of food that occurs as a result of increased demand for human consumption and for use as an alternative energy resource,” he said.Mr. Gunawardena said that normally during winter fuel prices increase and by February they would decrease. “Unlike in other years, this time the Supreme Court had determined the gas price should be increased or reduced in accordance with international prices,” he said. When the fuel prices in the international market are reduced, they have to be reduced in the local market as well, Mr. Gunawardena said.

State to go wholesale

The Government would be looking for an alternative mechanism to control food prices, the Trade Minister said adding that the President had discussed the matter with the Economic Policy Committee while he (the minister) would be submitting a report to the next Cabinet meeting with alternative suggestions to control food prices.

“I would be requesting an amendment to the Consumer Protection Act to control food prices. I take responsibility in saying that if I get a powerful Consumer Protection Act, like the one the late Lalith Athulathmudali had - one that can bite as well as bark - I would not let the multinational companies increase food prices as they wish as they have done so far,” the Minister said.

He said that to control food prices, the Government would form the ‘State Trading Wholesale Establishment’ with an investment of US $ 10 million and would be consulting trade organisations in relevant countries if Sri Lanka was facing a shortage of a certain food item and importing the needed food item, without imposing taxes if possible, and sell it for a reasonable price.

“We hope to form the establishment this January”, Mr. Gunawardena said.He said his plans are to make ‘Sathosa’ the largest distribution network in the country before the Sinhala and Hindu New Year and the State to be the owner of the main distributor of food items adding that in that way too the Government could control food prices.“A Consumer Court would be set up fast, before April, to solve the problems of the consumers,” the Minister said.