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Business leader Ariyaseela Wickramanayake is renewing his call for greater import substitution of food items by slapping higher levies on foreign products, thereby boosting local supplies.
He said that this strategy would be wiser than revising the exchange rate to deal with the ballooning trade deficit.“Tinkering with the exchange rate has no effect, but the President as Minister of Finance must consider imposing higher levies on imports of food items if he is keen on boosting the local economy and saving scarce foreign reserves,” Wickramanayake told the Daily FT.
His longstanding grouse has been Sri Lanka being used as a dumping ground for milk powder by New Zealand, Australia and others. “We don’t mind imports as long as their price is same as the levels in source markets. However, this is not the case. In New Zealand a kilo of powdered milk is Rs. 1,800, but they export to Sri Lanka at Rs. 560. A litre of milk is Rs. 200 in New Zealand, whereas in Sri Lanka it is Rs. 30,” claimed Wickramanayake, who is the Chairman of Pelwatte Dairy and Director of Pelwatte Sugar.
“Given the high cost of labour and other inputs, New Zealand cannot be competitive. Other countries have slapped higher levies on imports (India’s duty is over 150%), hence the scapegoat and the dumping ground is Sri Lanka,” added Wickramanayake, who is the Chairman of Pelwatte Dairy and Director of Pelwatte Sugar.
It was pointed out that massive subsidies also make New Zealand products cheaper when importing. Interestingly, New Zealand and Australia don’t allow milk imports.
Wickramanayake argued that increasing the minimum purchase price of liquid milk to Rs. 50 had failed to achieve desired results since farmers know there is less demand for their produce given the cheap price of powdered milk.
He estimates Sri Lanka to be wasting around $ 400 million on milk powder imports alone. “By importing we are only making countries such as New Zealand richer,” he lamented.
Wickramanayake also came hard on the import of sugar ($ 363 million in 2010) as well as canned fish, when Sri Lanka can easily meet its requirements by local means.
He said that imports in 2011 were estimated to have grown by 49% to $ 20 billion from $ 13.4 billion in 2010, resulting in the trade deficit ballooning sharply. As at October 2011, the trade deficit was Rs. 7.7 billion, up by 100% over the first 10 months of 2010. Wickramanayake envisions full year data would show a trade deficit of $ 10 billion, almost double the figure of $ 5 billion.
“As a country we are sinking and the Government needs to take serious action,” opined Wickramanayake, who rose to fame via his shipping venture Master Divers.
The Central Bank has attributed the rising trade deficit and imports to higher intermediate and investment goods. These two are estimated to have grown by 50% to $ 11.2 billion and $ 4.5 billion in 2011. On the other hand, food and drink imports are forecast to rise by 28% to $ 2.1 billion.
The Government remains confident of improved production of and demand for local products. On milk it envisages self sufficiency by 2016 though previous targets have been elusive.
“Unless imported milk power is sold at their true cost of production, local industry will bleed more,” Wickramanayake emphasised. Despite decline in international price levels, global milk powder producers haven’t passed on the benefit to Sri Lankan consumers, he alleged.
According to the Central Bank, fish production in the first 10 months had increased by 15.5%, though import of canned fish continues to drain foreign exchange. Previous ambitious plans to start a project for fish canning had made little progress. The Government expects the fish industry to grow to $ 1.5 billion by 2015 from around $ 500 million at present.
With regard to sugar, the goal has been challenging as well. Wickramanayake invested in Pelwatte considerably, before running in to debt. Harry Jayawardena-controlled Distilleries’ investment of Rs. 880 million for a 47% stake from Wickramanayake (who now owns 30%) was viewed as a bailout.
However, following the takeover of Pelwatte under the contentious Expropriation Act, the venture as well as Sevanagala Sugar owned by the Gamage family, the sugar industry tastes bitter once again. The takeover by the State is despite existing Government entities in sugar having failed to make any progress.
Nevertheless the Government early this week increased duty on sugar in a bid to boost local production whilst some viewed it largely as a revenue measure.
With regard to rice, Wickramanayake pooh-poohed Government claims of self sufficiency. “The country cannot say we are truly self sufficient in rice since we spend around $ 300 million on wheat imports. We should ideally switch to rice-based flour if we are truly self sufficient,” he argued.
The paddy sector has improved considerably in 2011 with a bumper harvest prompting the Government to explore prospects for exports. In 2010, however, Sri Lanka imported $ 59 million worth of rice, the highest since 2004, whilst between 2007 and 2009 rice imports ranged from a high of $ 44 to a low of $ 23 million.
