Govt. a spoiler of veggies!

UNP MP Dr. Harsha de Silva at media briefing yesterday – Pic by Kithsiri de Mel

UNP MP and Consultant Economist Harsha de  Silva says the State must find a solution within the market mechanism for agriculture than militarising the economy

By Marianne David

UNP MP and Consultant Economist Dr. Harsha de Silva yesterday urged the Government to take another look at the issue of food prices and agriculture in a bid to find a solution within the market mechanism, not outside it.

 “You cannot militarise the economic activity of this country. That is going to be very dangerous. There is a civil structure to do these things. The military can come in, in an emergency, for example, during floods to go and rescue people, but not on a daily basis,” Dr. de Silva told a media briefing yesterday. Charging that the Government had not understood the fundamental problem in the agriculture sector in Sri Lanka, he noted that the problem lay in the inefficiency of the agricultural markets and that the solution would be to improve the agriculture markets instead of trying to find solutions from outside the markets, which would not work in a market economy.

Presenting data highlighting the volatility in prices at the main agricultural market in Dambulla over the last six years, he noted that it was “similar to a seesaw, going up and down” and cited prices of brinjal, tomato and green chillie as an example, all of which show extreme price variations.

“If the market was working properly, would you expect prices to move like this? Prices don’t move like this if markets are moving properly. The issue, if you analyse it, is missing information. The problem is that supply does not match the d emand. Sometimes there is over supply and therefore prices fall and at other times vice versa. Information should be communicated to farmers about what is required. That cannot be done by getting the Army to go and purchase produce from the farmers. There is a fundamental difference in the solutions being proposed.”

Dr. De Silva revealed that the reality in the market was that working capital was provided to farmers by vendors, not banks. “If the Army goes and buys from farmers in the first round, what happens in the second round? How will the farmers finance their crop? Will the Army start an agricultural bank to give working capital loans to the farmers? Will they add it to next year’s defence budget? Or will the farmers fall so badly that the Army will have to take over farming in Sri Lanka?” he queried.

“What about fishing? Fish prices are soaring. Now will the Navy start catching fish? Is that the solution the Government has in mind with regard to the high fish prices? These are people who fought a war, people whom this whole country respects. There was a photograph in one of the websites of a major weighing tomatoes. That is not what the people want; they want to respect the soldiers who won this war for us. I don’t think they should be made to sell vegetables and to fish.”

Dr. De Silva dismissed speculation about “vegetable terrorists” and there being a monopoly in the vegetable market, noting that unlike in the case of the paddy mafia, given the presence of only three millers, there were thousands of vegetable buyers and sellers.

Commenting on the envisaged food crisis, he said: “The President has said it is going to be worse than what we experienced recently and that we should brace ourselves for a food crisis. According to the Government’s numbers, which are fairly scary, 400,000 acres of paddy have been destroyed and so on. If you look at the area under paddy cultivation for the 2009/10 Maha season, you will see the five Districts of Anuradhapura, Polonnaruwa, Trincomalee, Batticaloa and Ampara produced exactly half of Sri Lanka’s entire harvest of paddy in the last season. If there is widespread destruction of paddy fields in those five districts, then I would assume that there is going to be some impact in the paddy harvest this season.”

Dr. De Silva noted that the last time the country went in to a food crisis, with inflation shooting up to 29.9%, the Government’s response was to change the Inflation Index. “There is speculation that it is contemplating this same move during the envisaged so-called crisis,” he added.

However, he noted that while the Government was calling on the people to prepare for a crisis on the one hand, Central Bank Governor Nivard Cabraal was presenting an entirely different scenario on the other: “Cabraal has said, as reported in the press over the last couple of days, that there will be no significant impact on prices due to the floods. He says there is an ample buffer stock of paddy and that the stocks will be released to the market and that there is absolutely no need for a monetary response with regard to the supply shock.”

“Now, ironically, in the last few years it is people like us who have been criticising the Government spokespeople who said inflation is not a supply-driven phenomenon. I have argued, written papers and spoken in public that it is a monetary phenomenon. Now suddenly the Central Bank is saying ‘yes, it is a monetary phenomenon’ and that this supply shock has no impact. On the other hand, different people in the same Government are saying something completely different. Here again we see absolute confusion as to the understanding of the problem that the Government is facing.”

Citing the case of exporters’ woes highlighted in newspapers in the recent past, Dr. De Silva said: “Exporters are saying they cannot deal with the appreciating rupee and are calling on the Government to do something to make them more competitive in the global market. In Parliament, the Government always says it will do something about it because we need the exporters. The Central Bank, on the other hand, is saying that there is no way in which the rupee will be depreciated and that it will continue to appreciate and therefore exporters have to look after themselves. Here again there is confusion, rising from the oxymoronic statements of the Government.”

Asserting that confusion reigned among the Government in understanding the economic problems it was facing, he added: “If you don’t understand the question, your solutions are not going to work. There is no point in giving cough medicine for a runny nose or a toothache, for example. That is the fundamental problem.”

Has poverty really halved?

While the Government’s stance is that the poverty level has halved, data just released by the Department of Census and Statistics shows that only nine districts out of 17 are above the national poverty line, revealed UNP Chief Economist and MP Dr. Harsha de Silva.

Addressing the media yesterday, he said: “What is significant is that if you go back to 2002, using the same data of the Department of Census and Statistics, nine districts were below the national poverty line then. If poverty has halved, how is it that after nine years only nine districts have average incomes that are above the poverty line now? Where is the improvement? If poverty has halved as the Government says, why are so many people below the poverty line?”