Supply chains and inflation

With the rupee under pressure and the April New Year around the corner, the Government is struggling to contain cost of living. Keeping a lid on gas prices and releasing price-controlled rice into the market has been proposed but is likely to have limited impact at best. 

When prices increase, the standard response is to blame the Government. This then provokes market intervention from the Government, particularly closer to elections and festive seasons. The agriculture sector is also a key vote base for any Government as it contains as much as 27% of the country’s labour force and by some estimates as much as 70% of Sri Lankans have an indirect link to agriculture. 

Interventions are, however, short-lived and after a point markets have to be allowed to function independently because sporadic interventions that are allowed to continue long term, can create market distortions. Unfortunately, the conversation the Government rarely focuses on is supply chains and how the agriculture sector is frequently undermined by their dysfunction. 

One of the oldest complaints about supply chains in Sri Lanka is that they are dominated by middlemen who profit significantly at the expense of both the farmer and the consumer. Most vegetables, fruit and coconuts struggle under the iron heel of the infamous middlemen who are accused of pocketing double what they pay farmers. 

Unfortunately, the growers have little choice but to sell their products to middlemen because there are no easy ways to access the market directly and it would require capital investment and other resources that producers usually do not have. The existence of oligopolies for key products such as rice also do not help matters and efforts to end this by releasing paddy to smaller mills have not run smoothly.

To resolve many of these matters Sri Lanka needs to invest heavily in infrastructure and technology. Other countries use cooled warehouses, data bases, new seed and fertiliser varieties to increase productivity and to produce year-round. They also introduce reforms to end monopolies and oligopolies.

In Sri Lanka the dependency on rain is massive, which has left an entire sector and the livelihoods of millions of people exposed to climate change. In other parts of the world the expansion of new irrigation methods, vertical farms, and better transport systems are increasing productivity and sustainability of agriculture. These measures have given farmers better ideas of what to plant, when, and provide better market access and price security. It also reduces gluts that result in the market being flooded with one product, which has fewer buyers. 

Reforming the agriculture sector should also target an increase in exports as that would increase revenue and improve productivity. The agriculture sector is also struggling with an aging population with younger people preferring to work in other sectors. The brain drain is problematic as technology infusion and other reforms require training that can be better accessed when there is also a younger and more educated workforce available. 

Unless these and other challenges are fixed the spiking of food prices will never be adequately tackled. Traditionally, State involvement produces uneven benefits, favouring farmers with financial resources of their own, with access to more land and with some formal education. The majority of resource-poor farmers are excluded from public support for agriculture, with infrastructure and institutional frameworks designed for the minority to benefit. 

The Government has to make sure that the latest effort is used to reach as many people as possible and it becomes the start of a larger sustained program of agriculture modernisation, supply chain upgrades and food security.