A Respite For Economically Downtrodden
By Thameenah Razeek
Currently, most of the economic sectors in Sri Lanka have been affected by COVID-19 with adverse consequences on trade balance and the balance of payment. The Government has taken numerous measures to revive the economy and the reducing of prices of 27 essential items was one of those.
In a bid to provide relief to the consumers amidst the COVID-19 pandemic and to address the economic crisis that has been created, the Sri Lankan Government reduced and will maintain fixed prices of 27 essential commodities for three months starting 8 February, subject to foreign exchange rates and any taxes that may be imposed on certain imported goods, Trade Minister Dr. Bandula Gunawardene said.
The Trade Ministry signed Forward Exchange Agreements with 78 selected local manufacturers and direct importers regarding the lowering of prices, as part of a Cabinet-approved price stabilisation project.
According to a Ministry press release, agreements were signed directly with the main supplier of each commodity – for example, rice mill owners and flour mill owners with respect to the prices of rice and flour respectively.
The Minister said, manufacturers and importers in both the public and private sectors have extended their support to the move, with state institutions such as BCC Lanka Limited, the National Livestock Development Board, the State Trading Corporation and the Industrial Technology Institute, signing the agreements.
With regard to importers, he said, agreements were signed with importers who have been supplying their respective commodities for a long period of time and had previously supplied the Government. However, he said, prices of such essential imported commodities will be reviewed on a monthly basis for the next three months, for changes, in foreign exchange rates and Government-imposed taxes on those commodities.
“If taxes are imposed then it can no longer be sold at the fixed price, so any such taxes will be added to the product price,” he added.
According to the agreement, red raw, white raw, white nadu, samba, keeri samba, wheat flour, white sugar, brown sugar, green tea, red dhal-Australian, big onion-Indian, potato-native, potato-Pakistani, chickpeas, dried Chili, Canned Fish – Local, Canned Fish – Imported, Sprats – Thailand, Chicken (Skinned), Salt, Milk Powder, Soybean Oil, Laundry Soap, Laundry Bar Soap, Toilet Soap, Hand Wash Liquid, Mouthwash (SLS) Certified) will be kept stable for the next three months, while the quality of the products will be maintained for the stipulated three months as agreed.
Those items will be sold only through Lanka Sathosa, Co-operatives and Q-shops. Speaking on the agreement, he said, the agreement will deliver these essential goods to the people with the proper quality at a lesser price.
Speaking further, Dr. Gunawardene stated, it is very commendable for the public sector as well as the private sector to express their willingness to agree to such a nationally important cause.
What is a ‘Q-shop?’
The first ‘Q-shop’ in Sri Lanka was opened by Prime Minister Mahinda Rajapaksa at the State Trading Corporation. According to Trade Minister Dr. Gunawardene, the concept of Q-shops creates market opportunities for young entrepreneurs.
The main objectives of this programme is to sell high quality products at low prices to the people as per the Saubhagya Dekma Policy Statement of the President and to intervene in creating competitive young entrepreneurs.
Under the initial phase of this project, 1,000 ‘Q-shops’ will be set up across the country, with plans to open 14,000 of them covering all Grama Niladhari Divisions in the country by 2024 to create market opportunities for young entrepreneurs by delivering high quality public sector and local private manufacturers’ products directly to the consumer.
But when inquired from the salesman in the Q-Shop based in Colombo 7, he said, the stock of goods is yet to get here to the outlet and then only they could distribute the goods at reduced prices. When asked about the type of products sold by them, the salesman said they sell locally manufactured products.
Understanding Forward Exchange Contracts (FEC)
Explaining what a Forward Exchange Contract is, Dr. Gunawardene said, Forward Exchange Contracts are not traded on exchanges, and standard amounts of currency is not traded in these agreements. Still, they cannot be cancelled except by a mutual agreement of both parties involved. The parties involved in the contract are generally interested in hedging a foreign exchange position or taking a speculative position.
All forward exchange contracts set out the currency pair, notional amount, settlement date, and delivery rate, and also stipulate that the prevailing spot rate on the fixing date, be used to conclude the transaction.
Broadly speaking, FECs are contractual agreements between two parties to exchange a pair of currencies at a specific time in the future. These transactions typically take place on a date after the date that the spot contract settles and are used to protect the buyer from fluctuations in currency prices.
Meanwhile, expressing the results of the newly introduced concessionary price list, Chairman of Lanka Sathosa Rear Admiral (Rtd) Ananda Peiris said, the updated concessionary price list will not have a huge impact on the consumers, but will provide a small amount of relief.
He said, the Government introduced the concessionary price list aimed at the poor who are earning a daily wage. However, the chairman of the institute noted that the Government took a decision to come to an agreement with the importers with the failing of many attempts at Gazetting reduced-price lists.
Speaking further, Peiris said, lower prices mean better deals for consumers. Also, they can benefit from additional products and services offered during a price war, adding, the prices of the goods increased parallely to the spread of COVID-19 across the island.
Products started flying off the shelves in stores and online. Panic buying set in around the country and stores quickly ran out of stock faster than they could be replenished. No sooner they flew off the shelves, in some cases, items could only be found at prices substantially higher than before.
Pointing out that apart from the better deals that the consumers are hoping to benefit from, Peiris noted that there are serious consequences coming out of these price drops. However, it was revealed that the price reduced essential items are yet to get to the Sathosa stores and it will take at least two to three weeks to store the items related to the concessionary prices. “There are customers calling over at the Sathosa outlets since 8 February, returning to their homes after discovering that quality items are yet to stocked,” he said.
He said that there can be a huge crowd around the Sathosa outlets on a daily basis amidst the pandemic. Security officers have placed barriers at the entrance to the Sathosa outlets and are controlling crowds despite quarantine regulations. He said, the crowds doubled with the announcement of the price reduction on 27 essential items.
Large crowds were seen on a regular basis and it increased after the Government’s announcement. While stating that the panic buyers that gathered in front of the Sathosa outlets have the possibility of creating a main COVID-19 clusters and sub-clusters, Peiris claimed, that they are helpless with the controlling of crowds; as the relief was provided to them and they have the right to ask for it.
“Introducing the concessionary price list is really good and it will help the poor in a big way. But there is a problem, with giving the opportunities only to the State-run shopping outlets. It has created unwanted tension within the community.
After the pandemic and the lockdown periods, the consumers have started to store food items in their homes. It is so unlikely that someone will pay a State-run shopping outlet to buy 1kg of rice,” he noted.
Explaining on further consequences, he claimed, customers’ expectations are increasing regularly and price lowering could create a trend where consumers had to wait until they are marked down, to purchase them. “It is so unsatisfactory to send customers back without any goods. But we have to wait until goods are stored in the outlets that match with the newly introduced price list. We never expected to profit from Sathosa outlets. Also, now it is not the moment to think of profit or loss, when we introduce the concessionary price list,” he said.
The other consequence was the quality of goods. He stated, when prices are frequently dropped, it may give customers the impression that the products or companies’ brands are of low quality.
Generally, Sathosa outlets got blamed for poor product quality. Albeit, everyone loves a good bargain, it was also blamed for low quality since the consumers sometimes see low prices as a sign of a low-quality product. Sathosa outlets recently got blamed for providing low quality rations to the people who were in lockdown areas. People were given stale and non consumable food items.
Ceylon Today studied several Sathosa outlets based in the Western Province and discovered that most of the goods are yet to get to the stores even though the announcement was made before 8 January.
The consumers had a different idea about the concessionary price list that was introduced last Monday.
Meanwhile, Karunawathie, a resident of Maradana, said, no matter how much the Government reduces the prices, the people will not get a real benefit from it. She said that despite the Government saying prices have been reduced on several occasions during the recent past, people have not been able to buy them at those prices so far.
She added people, especially in areas such as Colombo, are facing severe difficulties in the face of increasing prices at present. She said, if the aim of the Government is to give the people the real benefit of reduced prices, arrangements should be made for people to buy them not only at the Sathosa and Co-operative outlets but in all shops anywhere.
She said it was not practical to buy the goods through Sathosa and Cooperative outlets since there are no enough stocks. She also said, the people of the Colombo area, who have been severely affected by the COVID-19 virus, are now very helpless in the face of rising prices. “Only one or two members of the family are employed here. At present many companies have cut employees’ salaries,” she added.
Also, Kumara, a resident of Borella said, all the items that he wanted to buy, could not be purchased even though he was in a queue at a Sathosa outlet for a long time. He said, the Government and other authorities should make arrangements to supply the required quantities of goods to those outlets if they really care about the people, and added that there was no point in just publishing Gazette notifications or making statements to the Media that prices had been reduced. He said the Government should then look into whether people are actually able to buy goods at those prices.
“No matter how much the prices of goods are reduced, they are sold in shops at very high prices. Not that the authorities are unaware of them, but they pretend they don’t know. Billions of rupees have been spent to set up institutions for the benefit of the consumers. Their officers are paid from public funds. So, they should work towards the welfare of consumers. For instance, if the Government has reduced prices and still those goods are being sold at high prices, such institutions should act against such traders or companies. But they do not seem to do so,” he also said.
Sri Lanka is a lower-middle-income country with a GDP per capita of USD 3,852 (2019) and a total population of 21.8 million. Following 30 years of civil war that ended in 2009, the economy grew at an average 5.3 per cent during the period 2010-2019, reflecting a peace dividend and a determined policy thrust towards reconstruction and growth; although growth slowed down in the last few years.
High food prices, which remain at double-digits, is disproportionately affecting the poor who spend a larger share of their budget on food and these concessionary prices should also be implemented rather than just introducing them.
(Pix by Sarath Kumara, Akila Jayawardena and Kelum Chamara)