Inflation, chicken and eggs

by FS

(December 15, Colombo, Sri Lanka Guardian) "Politicians are talking a load of bull….", commented an irate housewife this week when told that inflation is coming down. "They should go to the vegetable and fish markets and see what consumers are buying and what they are (actually) eating," she said, and noted (jokingly): "Some consumers are sharing an egg between three to four people when purchasing in the markets."

The good news this week however is that President Mahinda Rajapaksa has decided to chair a Ministerial-level Cost of Living Committee to find ways of reducing the cost of living, which goes to show that the cost of living is a problem for the government whatever statistics might say.

The discourse over inflation and the cost of living is as old as the liberalization of the economy in 1977. No one believes - even if it is a true - government figures of inflation coming down. Last week however, the Central Bank releasing figures by the Department of Census and Statistics said the cost of living index (through which inflation is measured) is rising.

This week, a Business Times poll on inflation and the cost of living drew some interesting comments and hard facts. More interesting was a panel discussion by the paper which raised some hitherto, not-discussed issues.

For example, as one panelist pointed out, if inflation or cost of living is high, how do young people continue to buy a new mobile phone every three to six months or how are the clothes shops filled with shoppers if people don't have money?

The poll conclusively said times are hard for consumers and prices were rising daily contrary to government-listed figures. Yet another hard fact is that despite the hard times, consumer spending is on the rise and will be this Christmas and New Year season too. All the mega malls in Colombo and the suburbs and popular stores like House of Fashion, Odel, Hameedia, No Limit are brimming with shoppers. They have always been throughout the year with an extra zip during seasonal periods.

So if cost of living is high and unbearable, where is the money coming from? "Maybe they are living on borrowed money or credit cards (paying the minimum monthly payment)," suggested one of the panelist.

"Or are people doing more than one job to meet their expenses?" was the explanation offered by another panelist. A representative of the Housewives Association said many housewives are learning a skill or a self-employment avenue to supplement the family income while staying at home.

Thus are income levels being enhanced through extra work and home-based, self employment to meet rising expenses without resorting to cuts in food spending?

That's possible given the recent decision to import chicken and eggs to avert a shortage during this festive season. Trade Minister Johnston Fernando has said the government is allowing the import of 2,500 tonnes of chicken and 50 million eggs from India to meet the demand during the December holiday season, and in his view it's because of rising income levels (leading to more consumption) and also an increase in tourist traffic.

Poultry producers dispute the government claim of 'rising demand' saying cheap imports will kill the local market, adding that demand hasn't increased by 50% as stated by the government. A similar situation prevailed many years back when the late Kingsley Wickremaratne was Trade Minister in an SLFP-led government. A crisis in demand and supply saw the Minister allow cheap chicken and egg imports from India during December, triggering huge protests from poultry farmers. Imports were called off soon after that.

The bigger issue in local output is the cost of production where the cost of inputs is high often resulting in imports which are cheaper. Thus the dilemma governments have faced over the years is the balancing act between the interests of the producer (making sure they get a decent, workable price) and the consumer (making sure they get the cheapest possible price).

On the other hand consumer demand has also risen owing to an increase in tourist arrivals which has gone up by over 40% in the period to October this year compared to the same 10 months in 2009.

With the government gearing towards a target of 2.6 million tourists in 2016, does Sri Lanka have sufficient food production to feed an extra two million (tourism has averaged between 300,000 to 500,000 over the past few decades)? Some months back this question was raised by private sector tourism industry officials who were concerned that the country doesn't have the 'carrying (facilities)' capacity to cater to such high numbers.

"The cost of food will go up definitely because of the demand and the ability of the leisure industry to pay higher prices than the average consumer. Are we ready for this?" asked one travel industry CEO.

Also of concern over the capacity of local production are estimates of per capita income doubling in the next few years which would see consumption rising.

The poultry industry in particular has been urged to invest in new technology and increase output substantially, otherwise Sri Lanka would be forced to import the required shortage in demand.

While consumers and housewives proved their point this week that the cost of living is indeed unbearable and the government moved fast to set up a Cost of Living Committee, the answer is increasing local production and finding ways of reducing the cost of production which, eventually would result in lower consumer prices.