Controlling Inflation- undue high prices for essential produce is the key to poverty alleviation.  How we once did it.
Posted on December 25th, 2017

By Garvin Karunaratne

Inflation- Rising Prices is a major concern today. Sri Lanka had built up the infrastructure to control inflation. What we are seeing today-unbridled inflation, has been caused because we  did away with the infrastructure we had.

For the marketing of essential commodities, in my own words:

The Department for the Development  of Agricultural Marketing”¦ ensured that prices of all essential commodities were indirectly controlled and the traders were compelled to offer fair prices to the producers and the retail shop keepers were compelled to sell at fair prices to consumers.  This is a system that I have never seen elsewhere in the world’ ¦The motto of the Department was to pay the highest possible price to the producer and sell at the lowest possible price  to the consumer.( From: How the IMF Ruined Sri Lanka,”¦ (Godages)

 I was involved with the entire System because I was appointed Assistant Commissioner for the Development of Agricultural Marketing in 1955, and worked in the Ratnapura, Hambantota, Anuradhapura  Districts as well as was in charge of the Tripoli Market, the Headquarters of the Vegetable Marketing Scheme for a year in 1957.

 This System involved a Network of Retail Shops(Fair Price Shops) in every major city and a Vegetable  and Fruit Marketing Scheme involving purchasing, selling and processing   vegetables and fruits, a Scheme  that covered the entire island.

The entire island was covered by Assistant Commissioners in the Provinces and Marketing Officers posted in producer areas, who had to +report the availability of produce, prices at the Fairs, and guide producers to plant varieties in demand.

 A Network of Retail Shops(Fair Price Shops)

In order to enable the availability of essential food the Marketing Department established a large number of shops in the cities and these shops were well stocked with essential food like dhall, sugar, flour, onions and vegetables. These were sold at rock bottom prices, where no profit margin was kept. The intention was to unofficially control the retail prices offered by private traders. When a well stocked shop was selling goods at a low price the private retailers too had to sell at similar prices otherwise they will have no sales because the consumers will all go to the Marketing Department shops and the private shop keepers will have to close down. Assistant Commissioners had to ensure  that the Departmental shops were well stocked.

An incident comes to mind. I was then in charge of the Southern Province with my office at Ambalantota. In the Red Onion season we got wagon loads of red onions from Jaffna and we were required to sell at whole sale prices to traders and also to sell at our shops. One day  I had just inspected our shop at Galle and also visited a number of private traders’ shops to ensure that they did sell red onions at reasonable prices. I returned to Ambalantota. The next morning in office I got a telegram from Head Office. It read, Member of Parliament Dahanayake reports that there is a shortage of red onions in Galle. Inspect and report at once”. Those were the days when we had no mobile phones and it was very difficult to get long distance calls. . I got into my car and reached Galle by  around four. I went straight to our shop and found it well stocked with red onions. I checked the books for sales. I visited a number of private shops and found them well stocked selling at a slight higher price than our price. That was how it ought to be. Armed with these details I went to Mr Dahanayake’s residence. He was not in and I waited for him. I knew him well. It was late in the night about ten that he came home and inquired what brought me there. I brandished the telegram and said that I had been in Galle the earlier day and found that red onions were available in our shop and that there was no shortage. He  looked hard at me for a few minutes and said, Garvin, You know a man came to meet me and said that there was a shortage of red onions and to satisfy him I sent a telegram to the Minister” I quipped, ” But sir, there is no shortage and there never was” ” That I know but to keep that man happy I had to send a telegram.”  He added,” That is politics, Garvin. We have to keep our supporters happy. Don’t you worry, next time when I go to Colombo I will meet the Minister and tell him that there is no problem here with the Marketing Department”  That was all. I reported this meeting to our Commissioner and never heard again. Presumably Mr Dahanayake had phoned the Minister.  We Assistant Commissioners had to have a dragnet over all essential supplies and that included not only our shops but all private shops. It was an indirect control of prices and availability.

Again, once at the District Coordination Committee at Anuradhapura it was reported that the few traders were fleecing the colonists at Padaviya by charging high prices. I was the Assistant Commissioner at Anuradhapura and said that we will open a shop at Padaviya. I got covering approval from the Commissioner and in a few days time opened a Shop at Padaviya, to serve the colonists. Our Shops effectively controlled the cost of living. The private traders had to cut their profits as otherwise they would be  out of business. That scheme worked well.

The Vegetable and Fruit Marketing Scheme

The Marketing Department established Vegetable and Fruit Packing Sheds(actually purchasing units) in all producing areas. The name given was packing sheds and they were in many places in temporary buildings mostly made with timber. Even some Assistant Commissioners had their offices in these temporary buildings in 1955.

The entire Vegetable Marketing Scheme was administered from Tripoli Market, based in the largest hangar in the Colombo Goodshed.  One part of the Scheme was to purchase vegetables and fruits from producers who brought their produce to our Vegetable Packing Sheds. They were paid immediate cash. The Department was equipped with lorries that were sent to the chief  Producer Fairs in the producer areas. Thus there were mobile purchasing uints at all major fairs like Embilipitiya, Colombage Ara,  Bandarawela, Welimada, Kekitrawa to mention just a few. These Purchasing Units comprised Marketing Officers and a staff of purchasing officers and labourers. The produce brought in was weighed and accepted from producers and they were paid cash immediately. The Assistant Commissioners of the Districts were required to visit all major fairs to ensure that the purchases were made regularly. When I worked in the Districts on most days my day commenced at four to get to the Fairs by six in the morning. Vegetables were purchased and packed and dispatched to Triploi by evening either by wagons(by trains) or by special lorry.

At Triploi Market, the Assistant Commissioner  had a Marketing Officer at the Colombo Wholesale Market. His task was to report the prices at which the wholesale traders sold the produce to the retail traders and to report on the availability of produce. In the Districts, the Assistant Commissioners and the Marketing Officers had to report the prices at which private traders purchased vegetables and fruit.  Generally there was a wide gap between the prices at which the traders purchased goods and the prices at which the Wholesale Traders sold to the retail traders in Colombo. Based on these prices, the Assistant Commissioner at Tripoli Market decided the purchasing prices at which goods were to be purchased at the Fairs. This price was always above the prices offered by the traders who bought goods at the Fairs. This helped the producers and the traders at the Fairs too had to offer a similar price because otherwise the producers will not sell to them.

On a daily basis Tripoli Market received around twenty wagon loads of vegetables and a similar number of lorries bringing in produce. These were checked and had to be in our Retail shops by ten in the morning.  Tripoli Market was a hive of activity from early morning.  Then the Railways ran a very efficient service and brought in produce in time.  For instance curd from Ridiyagama Farm in Hambantota was sent by lorry to Matara and came by night mail train to Tripoli. This was an item in high demand. The retail price we fixed for Ridiyagama Curd effectively controlled the prices of curd in private shops in Colombo.

The Assistant Commissioner at Triploi Market kept a very low margin to cover up cost of transport and handling and fixed a low price for sales to the consumers through the network of Shops. Generally the Marketing Department kept a margin of around 10 to 15% above the purchase price while the private trader at the Fair  kept a margin to 40 to 50% and the Whoelsale Traders too kept around 40% and further the retail trader too kept around 40%.  Thus while the private trader generally kept a margin of 100% or 120% over the purchasing price at the Fair, the Marketing Department kept a margin of 10% to 15%.  The establishment of Special Vegetable Depots at Dambulla  etc in recent years, actually created another middleman, keeping a margin of profit.

The working of the Marketing Department  meant that the private traders at the Fairs and the Wholesale Traders as well as the Retail Traders in the cities had to be satisfied with a low margin.

The Marketing Department in the Fifties was headed by BLW Fernando, a Chartered Accountant and he would not allow any Assistant Commissioner to keep a higher margin than 15%. That was a rule to be followed. Every month all Assistant Commissioners had to attend a Conference where the Profit and Loss calculations were closely studied and the Commissioner would chastise all Assistant Commissioners that  had a profit of over 10% or incurred a loss.  We were expected to cover up, not to incur a loss or  to get a large profit.

This was the key method by which the prices of vegetables and fruits were kept in check. The Scheme has thus a dual aim- of offering the producer a fair price as well as offering the consumer a low price.  At times it was like walking on a rope but we got used to walk on it.

The Retail Shops had to be well stocked and full of goods otherwise the wrath of the Commissioner had to be faced.

A few years ago on one of my visits I found tomatoes being sold at forty rupees a kilo by a producer on the Mahiyangana Road, when the retail price in Colombo was around rupees eighty to one hundred, a margin of over hundred percent. This could not happen while the Marketing Department was at work. The Assistant Commissioners  were eternally traveling as they had to visit Fairs, inspect purchasing at the Fairs and the Vegetable Purchasing Depots, contact producers and offer advice on items on demand. Generally our traveling allowances exceeded our salaries.

Tripoli Marker had cold rooms where the excess produce could be stored.

This Vegetable Marketing & Fruit Marketingh Scheme  was very successful in ensuring that consumers in cities obtained vegetables and fruits at cheap rates. The Cost of Living was kept in check.

 The Canning Factory

Local producers got a boost with the establishment of the Canning Factory in 1955. At that time Sri Lanka imported fruit juice and fruit from Australia and the task of the Canning factory was to produce fruit juice, jam an-d jellies. The Vegetable Purchasing Centers sent goods to the Canning Factory. At the initial stages in canning fruit juice many problems were faced and it took over a year to surmount them and get down to production for all Sri Lanka’s requirements. The Marketing Department offered  floor prices for pineapples, red pumpkin and ash pumpkin and producers benefited immensely. Floor prices meant that the Department will purchase everything offered at that price. Pineapple was tinned and even an export trade was built up. Assistant Commissioner Oswald Tilekeratne spread his wings abroad very often. Red Pumpkin was turned into Golden Melon Jam and Ash Pumpkin was turned into Silver Melon jam. The Factory activity made Sri Lanka self sufficient in fruit juice, jam and many other processed food within a few years.

The Marketing Department was called upon to attend to many tasks.

Once Sri Lanka was not self sufficient in eggs. The Marketing Department offered a floor price for eggs and Triploi Market collected eggs from the Negombo-Nattandiya area till Sri Lanka was self sufficient in egg production. Once Self sufficiency was  reached the scheme was disbanded.

It was found that during the Kataragama Season, the restaurants charged high prices for meals.  This the Government combatted by running a large restaurant. Officers who have the ability were posted from various units and they provided quality meals. The Menu included thosa, kiribath, string hoppers, pittu, rice and curry and the restaurant was kept open till late. When I covered the Southern Province I was in charge of this restaurant for two years and was held responsible for providing good quality meals at a cheap rate.  This was the method by which the cost of living of the pilgrims was controlled.

With the abolition of the Marketing Department, and the privatization of the canning factory all this achievement was lost. That was the way in which the IMF crippled the development of the Third World and created a situation where we had to import from the Developed Countries.

Once the tomatoes producers at Hanguranketa made pandals of tomatoes in order to highlight their plight of not being able to sell their tomatoes. This could not have happened while the Marketing Department was functioning. To start with the Assistant Commissioner would be held responsible. If that happened when I was in charge of The Triploi Market I would have sent a few lorries and the entire stock of tomatoes would have been purchased within a few hours and it would have been turned into Tomatoe Sauce and Juice at the Factory. Today Spain produces tomatoe sause, tomatoe juice, tomato paste and sun dried tomatoes for most countries in Europe. With a Tomatoe belt in Hanguranketa we cannot produce tomato sauce even for our requirements. Our climate had enabled a variety of crops. There is a mango belt from Anuradhapura to Matale. Even today if action is taken to pluck mangoes and process it, we can be self sufficient in all fruit juice within six months. The Chena cultivators will find sales for their Red Pumpkin,Ash Pumpkin and Melon. There is an Avacado belt from Peradeniya to Gampola and avacado juice can easily be made. The country will benefit by avoiding the millions spent on imports.

Following the liberalization free market economics of the IMF we  created a market for tomatoe sauce from the USA, and fruit juice from as far as Canada and Oregan in the USA.  Our producers have stopped producing large quantities for fear of being unable to sell and we have unemployment and our farmers have low incomes. The Colombo Supermarkets are full of Heinz Tomatoes sauce from the USA and fruit juice and jam from Australia. The IMF did its work right to cripple development in our countries and for us to buy goods from the Developed Countries.  That was the Structural Adjustment Programme in action. (For more details: How the IMF Sabotaged Third World Development: Kindle & Godages)

 The Bakery

The Marketing Department had a Bakery. This was the best bakery at that time and produced bread and short eats at very reasonable prices. Then the price of bread was controlled and this bakery enabled the Government to fix a reasonable price. In the absence of the State attending to produce bread even if the Government wants to fix a control price the Government has no definite method of finding the fair price, as the government has to be guided by the Private Sector bakeries..

 The Marketing Department with its vegetable and Fruit marketing Scheme and its Canning Factory took not years but decades to build up. All was lost when at the behest of the IMF President Jyawardena abolished the Marketing Department and privatized the canning factory.

The IMF advice which we have followed from 1977,  has been for the Public Sector to be limited to the barracks, while the Private Sector has a hey day. In my experience it is the Public Sector has to be marshalled to serve the people because the Private Sector will only work if they have a fat profit and that profit comes at the expense of the consumer. The aim of the Public Sector is not to supplant the Private Sector but to work with the Private Sector and provide guidelines to avoid disaster. Today almost every Developed Country including the USA, the UK, Spain, Greece and even Germany are all faced with problems caused  by the Private Sector bleeding the economies to death. It began with the Banks. It is a system where the rich fleece the majority , even at the cost of ruining the entire economy to aggrandize wealth. It is this System that was foisted on the Third World countries like Sri Lanka by the IMF and the earlier we understand this the better,

( For more details my book: How the IMF Ruined Sri Lanka(Godages)

Today, the IMF advice to Sri Lanka is to export to India and China. Both these countries control their economies with a stranglehold and no one can export to them, The IMF does not even understand the basis of their success. Take India trade with them is always in their favour.. The Chinese economy is thoroughly controlled. Every dollar that comes in is strictly accounted for. Both India and China are not liberal and free economies. Both India and China have succeeded in production and control inflation effectively.

To my mind it is high time the present government re establishes the Marketing Department with its Canning Factory and Cold Rooms.  This will be a boon both to the producer as well as to the consumer. I would urge that it be considered. To my mind the Marketing Department mechanism is the only method of controlling inflation and the cost of living’

Our New National Economic Council  may please consider my suggestions.

Garvin Karunaratne, Ph.D. Michigan State University

Formerly of the CAS, G.A. Matara

25/12/2017

One Response to “Controlling Inflation- undue high prices for essential produce is the key to poverty alleviation.  How we once did it.”

  1. Christie Says:

    Marketing Department not a Banda job?

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