The dependency of the country on food imports is often bemoaned and political rhetoric on the need to be self-sufficient in food is plentiful. On the other hand, policies to conserve fuel consumption are rarely heard of. Conversely, what we hear about is the need to reduce domestic prices of petroleum products in the local market.
This demand to cut petrol prices has increased with the drop in international prices for oil. The unsuccessful hedging operation has made the reversal of international oil prices of little benefit to the consumer. Owing to this fiasco there is a need to maintain high retail prices. Nevertheless taxation on oil to keep prices high has a rationale in terms of conserving the consumption of petroleum products and electricity consumption that is mostly generated by oil. The dependency on food imports is quite a different story. There is considerable misunderstanding on the actual situation with respect to the two issues of food and fuel imports. It is true that we are not self-sufficient in food, but the dependence on food is marginal in comparison with our huge expenditure on fuel. The latter is at threatening levels where our trade balance is concerned.
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An analysis of the food situation in the last 5 years (2003-2007) demonstrates that the country’s food dependence is not huge. Despite fairly significant amount of food imports, the value of all food and drink imports has been less than 10 per cent of total import value since 1995. It was only 7.4 per cent of the total value of imports in 2004, despite this being a year of low domestic food production. In 2006 and 2007 all food imports constituted only 9.3 and 9.4 per cent of total imports, according to Central Bank Annual Reports.Much of the attention on food imports has been on rice imports. From prior to independence, governments had a policy of being self sufficient in rice. These policies have borne fruit and the country is now more or less self sufficient. In 2003 Sri Lanka produced the total requirements of rice and did not import any significant amount of rice. In 2004 paddy production fell and about 8 per cent of the requirements were imported. In 2005 and 2006 the country was once again just about self-sufficient in rice. In 2006, rice imports were only 12,000 metric tons. In 2007 there was a shortfall in rice production and 84,000 metric tons or about 3 per cent of the country’s requirements were imported according to Central Bank Annual Reports.
This achievement of near self-sufficiency in rice is very different to the situation in the early 1950s when we imported about one half of our requirements of rice to feed a population of only 7 million, as against the current situation of domestic rice production being more or less adequate to feed a population of over 20 million. However, the reduction in rice imports has been complemented by increased imports of wheat that have risen from around 30 kilograms per capita in the 1970s to about 50 kilograms per capita. This has been a common trend in other rice producing Asian countries as well.
Other significant food imports are of sugar, milk and fish. About 85 per cent of sugar requirements, 80 per cent of milk requirements, 40 per cent of fish requirements are imported. Also a variety of other food imports constitute about 50 per cent of food imports. This is again s different to the situation in 1951, when food imports constituted 45 per cent of the total import value, and rice imports alone constituted 15 per cent of imports. Even in 1977, prior to liberalisation, food imports constituted 36 per cent of total import value.
It is very significant that the total value of food imports is more than covered by the value of agricultural exports. In the 2004-2007 period the total value of food imports was more than covered by the value of agricultural exports. In 2004 food import cost was only two-thirds of agricultural export value. Tea export value alone covered the total import cost of food and drink items that year. Food imports were 10 per cent of export earnings in 2004. The total food import bill was only 13 per cent of industrial export earnings. Even after a generous allowance of 60 per cent for the imported inputs of manufactured exports, the net foreign exchange earnings of manufactured exports exceed the value of total food imports. In 2004 the cost of food imports was 75 per cent of the net foreign exchange earnings from garment exports alone and the net foreign exchange earnings from industry are thrice the value of food imports. In 2007 food imports were only 9.4 per cent of total import expenditure and only 13 per cent of total export earnings. Tea exports alone covered the cost of all food imports that were two thirds the value of agricultural exports and were only 17 percent of the value of industrial exports. Therefore Sri Lanka though not self-sufficient in food, is able to obtain its food needs through its import capacity. Food imports are not a huge strain on the trade balance and other agricultural exports more than compensate for the import expenditure on food. This does not mean that we should not try to increase domestic food production. Any increase in food production that saves foreign exchange through savings on food imports is valuable.
The situation with respect to fuel imports is very different. Oil imports constitute a huge proportion of the country’s imports and eats into a high proportion of the country’s export earnings. Oil imports account for nearly a quarter of the country’s import expenditure and absorb nearly two thirds of the country’s export earnings. There has been no respite on oil imports that increased to US $ 10,763 million during January to September this year. This was an increase of 33 per cent from US $ 8049 million over the same period last year. Sri Lanka bought 2.79 billion dollars of crude oil in the first nine months of this year. This is an increase of 33.1 percent from US $ 1.47 million in the same period last year.
There is an optimistic expectation that the country would be able to find its own oil by 2010. This is an uncertain hope, may be even a mirage. In fact recently professional geologists said that the prospect of actually finding oil is bleak and the costs of exploration prohibitive. Therefore the country must explore alternate avenues of energy exploration to get out of the excessive dependence on oil imports. This is what we stressed last week.
A reduction in oil prices cannot be taken as a signal of a declining trend, only a temporary respite. Oil prices are likely to rise to around US$ 75 a barrel quite soon and then rise further as the demand for oil picks up. The country cannot expect to expend so much of its resources on oil imports alone.
Conservation measures where price would be a factor must be put in place, while at the same time exploring alternative avenues of power generation. In contrast food imports are not a serious issue for the country, though once again increases in productivity of agriculture could be a useful contribution especially with the severe strain on oil imports. |
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