The Ever Increasing Cost of Living. Is there a Solution?
Posted on March 19th, 2010

By Garvin Karunaratne, Ph.D. former Government Agent, Matara District

 The current Government of President Rajapaksa is blamed for increases in prices of essential commodities. It is true that prices are exorbitant today. I am told that a kilo of beans at Narahenpita Wholesale Market was as high as Rs. 90. I was in Sri Lanka in February and did travel to Kataragama and also to Mahiyangana via Randenigala.The prices in the remote rural areas are very low while in the cities the prices are very high. On the way to Mahiyangana I spotted a lorry being loaded with crates of tomatoes and the price was Rs. 40 a kilo.

If I offered spot cash, I could have purchased it for less.. It was been despatched to Colombo and payment would be weeks later. Back in Colombo the price of a kilo was never below Rs. 80 a kilo- a massive 100% profit. This unfortunately is a global phenomenon. In 2009 I toured Spain and bought a bag of satsumas at a farmgate for a single Euro. In the nearby Supermarkets the price was four Euros- a mark up of 400%. In California the trees are laden with lemons and oranges and there is no system of selling at the farmgate. However an orange is sold at around thirty cents in the Supermarkets.

The private sector that handles the trade has to be blamed- be it in the USA, in Spain or in Sri Lanka. The motto of the Private Sector is to make a profit. Theirs is to Get Rich Fast.

However there is a difference as far as Sri Lanka is concerned. This is because Sri Lanka is the only country in the world that had the development infrastructure in place to ensure that the producer gets a fair price and simultaneously for the consumer to get the same goods at a fair price. Even Bangladesh and India, countries well known to me do not have this development infrastructure to combat inflation and poverty. To get to basic facts that system enabled the producer near Mahiyangana to get paid at Rs. 40 a kilo and also enabled the consumer in Colombo to get it at Rs. 50 or Rs 55 a kilo. This was the Department for Development of Agricultural Marketing at work.

On the whole, in addition to the Marketing Department there were a number of Programmes that were aimed at controlling prices. This Development Infrastructure aimed at reducing the cost of living comprised:

1.the Rice Ration Scheme for people to be assured of a rice ration at very low subsidized prices

2. the CWE shops to import essential commodities that we do not produce and sell at reasonable rates,

3. the Guaranteed Purchasing Scheme to purchase paddy and other cereals at a premium price aimed at helping producers to invest more and thus for the country to become self sufficient. Later this function was handled by the Paddy Marketing Board.

4. the Rice Mills which produced quality rice,

5. the Vegetable & Fruit Purchasing Scheme of the Marketing Department, which included purchasing units in all producing areas, purchase of essential commodities at fair prices and having retail shops in all major cities where the goods were sold at cheap rates- aimed at increasing production to stave off imports as well as to provide goods at cheap prices to consumers,

6. the Canning Factory of the Marketing Department to produce jam, jelley, fruit juice- aimed at both providing the consumer with quality products as well as establishing an export trade,

7. the Bakery producing quality bread and short eats at cheap rates.

8. Controlling prices and ensuring that essential commodities are sold at the controlled price

The Rice Ration Scheme was aimed at providing a sufficient quantity of rice to the people at a reasonable rate. This helped the poor people as well as the middle classes. To the real needy the rice was at times given free. The Jayawardena UNP Government abolished this Scheme in 1979 and in its place established a Food Stamp Scheme which was given only to the poor people. The low income earners were ignored. In my own words:

“Many who were not in the poor category that were entitled to receive food stamps found that they could not afford to buy their food requirements. This was partly due to the devaluation of the currency by almost 100% and the high inflation that it brought about. This led to a situation of malnourishment The United Nations’ Human Development Report, 1990 states “In Sri Lanka some of the poorest people lack access to their main staple diet despite a Food Stamp Programme”¦.

Inflation doubled the price of food between 1979 and 1982 and halved the purchasing power of the food stamps”¦ After March 1980 no new applications were accepted. This disqualified all new borns and families that subsequently suffered income losses. The per capita calorie consumption of the lowest decile(of income earners) fell from 1335 calories to 1185 calories and that of the second lowest decile from 1663 calories to 1558 calories”.(From:How the IMF Ruined Sri Lanka..(Godages))

The calorie requirement is around 2100 per person and the above statistics tells of the poverty created by abolishing Rice Ration Scheme. This was the Jayawardena Government in action.

The CWE Programme was for the Government to import essential commodities in competition with the private sector and distribute them to people through retail shops at a cheap price. The intention was to unofficially control prices because if the private sector shops sell at high prices people will not buy from them but will purchase from the CWE shops. The CWE shops were well stocked. The CWE was abolished and the CWE shops were closed down during the Ranil Wickremasinghe rule of 2001 to 2004 and this enabled the traders to make fat profits. The CWE was a shrewd mechanism to control inflation in all imported essential commodities.

The Guaranteed Price Scheme offered premium prices- at times even double the world market price for commodities like paddy in order to get farmers to increase production. The paddy was purchased only from genuine producers through cooperatives and the paddy was milled at Government rice mills and through private rice millers. Buffer stocks of paddy and rice were kept at Government Stores to ensure food security. The Jayawardena Government scrapped this paddy purchasing scheme. Farmers were thereafter at the mercy of the traders and rice millers and there was no incentive to increase production. In 1999 I wrote:

“Today, the rice trade is in the hands of five large traders. Today instead of developing our rice production we are actually destroying it. Instead of having exotic rices of our own we have Basmati being marketed. We are perhaps the only country in the world that does not play an active part in controlling and ensuring the production and supply of our staple diet. We have totally played into the hands of the USA because they will readily offer flour when there is a shortfall of rice. Our people will fall more and more into the bread trap and get used to eating wheat flour which we cannot produce. The net gainer is the USA, Canada, the EU-the producers of wheat.”

It will also help the multinationals that are waiting to supply rice if there is a shortage.

Rice Milling. Once in the Eighties I was passing through Ambalantota and I turned onto the Ridiyagama Road to see the Ambalantota Rice Mill where I had my office when I covered the Southern Province. It was the State of the Art Rice Mill, milling 4000 bushels of rice a day, providing employment to around a hundred people. The Stores had been neglected and sections of the premises had been cordoned off and perhaps sold. The Mill itself was vandalized and neglected. These days the Government is importing new rice mills- what an unnecessary expenditure due to our own folly of ruining out treasured assets. The State of the Art Rice Mills are no more and today people get paddy milled in local small rice mills that have outmoded machinery giving an outturn of only 47% or less of rice,while the Departmental Rice Mills got 52%.

The Vegetable and Fruit Marketing Scheme was begun during the World War II to provide vegetables and fruits at cheap rates to consumers. The cornerstones of this Scheme was to have Purchasing Units in all producing areas, a Central Depot in Colombo and Retail Units in all cities. The Central Depot at Tripoli Market, in the Maradana Goodshed, carefully surveyed the availability of vegetables in the Colombo market, studied the wholesale prices at which the vegetables etc were being sold to retailers. Based on this information, the Tripoli Market fixed the purchasing prices for all major varieties of vegetables keeping a very low margin. The Purchasing Units visited all major producer fairs in the island and purchased all the main varieties of vegetables.

My first job in 1955 was as an Assistant Commissioner in this Marketing Department. It was my task when I worked in the districts to advise producers what to produce and to ensure that the produce fetched a fair price better than what the traders offered and then get the goods transported overnight to Colombo and there it was offered to the public at a cheap rate. Generally the margin we kept was ten to fifteem percent. Thus a kilo of tomatoes we bought at Rs 40 a kilo was retailed in the Marketing Department shops in Colombo at Rs 50 or Rs. 55 per kilo. In this system the producer did get a fair price and the consumer too got a reasonable price.

In the Producer Fairs, the traders do know that if they hold on to the low prices the producers will at the tail end of the day have to give in and sell to them as otherwise they will have to transport the goods back home incurring transport costs and bring the same goods back the next Fair Day when they will meet the same traders and the same fiasco happens again. To add to this is the fact that vegetables and fruit cannot be stored because it is perishable. Thus in a normal scene the producers are held locked up and are at the mercy of the traders.

Economic theory has it that there is competition among traders- but not so in real life.

In comes the Marketing Department. We Assistant Commissioners had surveillance over all producer fairs in our area and my day began at four o’clock in the morning on at least four days a week to get to the Fairs in time. Unofficially the Marketing Department controlled the purchasing prices at all major fairs in the entire island. We had a mobile purchasing unit with a board exhibiting the prices we offered.

The vegetables etc that were purchased were despatched by rail or lorry overnight. The Tripoli Market received on the average twenty wagon loads and twenty lorry loads of vegetables every morning. Work starts at six in the morning, receiving the goods, grading them and packing them off to the Retail sales Units where they were sold at fair prices. The private traders had to sell at the same prices if they were to be in business. Unofficially the Marketing Department controlled the sale prices. The System , on my own words was, “To pay the highest possible price to the producer and sell at the lowest possible price to the consumer, a creation of Administrator Basset and B.L.W.Fernando. We as Assistant Commissioners tried hard to walk on this tight rope. At the end of each month a profit and loss account was made and I have had to bear censure if I had incurred a loss or achieved a profit of over 10%”.(page 256)

I was in charge of the Triploi Market in 1956. I and Oswald Tillekeratne another Assistant Commissioner worked round the clock because work commenced at six in the morning and continued minute by minute with unending phone calls calling for supplies from the various depots and we had over fifty. It was a hard task replenishing stocks that get sold fast. A hundred lorries were on the incessant move. I had three officers having survelliance over the Central Market in Colombo and they relayed the prevailing prices and available quantities, which helped me to fix the purchasing prices. Tripoli Market was a hive of activity with a staff of over a hundred.

The working of the Marketing Department was very demanding. I can remember an instance regarding the sale of red onions in Galle. I covered Galle and wagon loads of red onions came from Jaffna. We sold to the traders at a reasonable price and also sold at a cheap rate in our retail unit at Galle. It was my task to see that traders were provided with red onions and also to see that our retail shop never ran out of Red Onions. I was in Galle on a certain day and everything was in order. I got back to Ambalantota my headquarters.

The next days a telegram came from head office. It read “MP for Galle Dahanayake reports shortage of Red Onions in Galle. Proceed immediately, inquire and report.” I hooked into my car= it always had my toiletries and extra clothes. I was back on my way to Galle. I went to a number of private retailers observing whether they had red onions and finding the sale price. I went to our retail unit and found they had stocks. I had my network of private informants whom I contacted and was satisfied that our shops functioned well. I always built up a private spy service of friends. Then I went to meet Mr Dahanayake. He was not at home and I waited till he came. It was hours but I had to meet him. He came home at around ten o clock in the night and was surprised to see me waiting for him. I showed him the telegram and told him that there was no shortage of red onions at all in Galle. He looked hard at me for a moinent. I knew him well and was in constant touch with him.

” You know, Garvin we have to please our voters. Some fellow came and told it to me and to keep him happy I sent a telegram to your Ministry”, I asked for the name of his informant and was told that he cannot remember.

I pointed out that this telegram gave the impression to my Ministry that I was not doing my work well.

“That is politics” he said. Next time I go to the Ministry I will tell the Minister that everything is satisfactory. Tell me if you have any problem.”

That was all. I submitted a report of my investigation and what Mr Dahanayake told me. And the Ministry took no further action. Evidently Mr. Dahanayake had contacted the Ministry. We Assistant Commissioners were always on pins.. It would interest people to know that in many cities in 1955- in Kandy, in Ratnapura and in Nuwara Eliya, the Assistant Commissioners worked from sheds made of wood. They were called Vegetable Packing Sheds.

We included fruits for this scheme and purchased oranges at Bibile. We fixed floor prices for eggs and as a result Sri lanka became self sufficient in eggs. The Marketing Department established a large Canning Factory which enabled the Department to fix floor prices for pineapples and red and ash pumpkins. These were canned and made into jam and juice and Sri Lanka became self sufficient and was able to stop imports. Red Pumpkin was the base for Golden Melon jam. The Marketing Department even built up an export trade in pineapple.

In addition, the Assistant Commissioners in the Districts advised the producers what varieties should be produced- this was based on the demand. We laid a dragnet covering all producer fairs in the island and visited them to see that the traders offered reasonable prices to the producers. We were known to the traders and they were aware that if they offered low prices, one of our mobile purchasing units will be sent the very next week. Overall the Marketing Department did purchase less than ten percent of the crop, but we really ruled the day to determine the prices for the producers as well as the prices in the cities.

The Marketing Department was abolished because it interfered with the free trade and the private traders were allowed to do anything they want. The Canning Factory was privatized and instead of buying goods from producers they now import fruits and produce jam. The UNP regime was thus responsible for canceling this Scheme which had taken decades to establish.

The Marketing Department was always making a small loss and was totally decimated by the UNP Government of Jayawardena at the behest of the IMF. The achievement of the Marketing Department to offer fair prices to the producer, to enable city dwellers to obtain goods at cheap rates, to enable the country to become self sufficient in vegetables., fruits, fruit juice, jam and thereby save foreign exchange by avoiding imports, the creation of employment in our country was not the concern of the UNP Government. The IMF’s intent was to create trade and jobs for the Developed Countries. The poverty and unemployment created in the Third World was to be accepted as an essential factor for the well being of people in the Developed Countries. Take any advice or policy of the IMF and this will be revealed as their motive.

A Bakery was established in Colombo which produced bread, cakes and short eats and sold to consumers at reasonable rates. This Bakery was closed down by the UNP Government.

Price Control.

In order to make essential commodities available to consumers at reasonable rates, the prices were controlled and there were Price Control Inspectors that conducted inspections to ensure that traders sold at fixed prices. Price Control was abolished by the UNP Government. This has been brought back by the Rajapaksa Government.

The above details of how Sri Lanka had built up an effective infrastructure to combat inflation and at the same time to enable the development of production and how this entire infrastructure was vandalized through privatization details how the UNP Governments are responsible for creating poverty.

Thus the blame for the price increases in essential commodities, shortages in the supply of fruits and vegetables, the shortages in rice in Sri Lanka have all to be laid at the door of the United National Party, because it is they that abolished the entire development infrastructure that we administrators and enlightened politicians had built up over the Forties, Fifties and Sixties. The UNP axed the Rice Ration Scheme, the Marketing Department, the Paddy Marketing Board and the CWE. The CWE was abolished and sold off during the 2001-2004 reign of Ranil Wickremasinghe. The rest were sacrificed during President That ruin is the record of the UNP and what can we expect of Ranil Wickremasinghe. He is bound to be the undertaker for what is left in the country.

It is a moot question as to what one can expect if the UNP wins at the general election. The prices will escalate further and the rich will become richer and there will be higher unemployment due to the system of free trade and reducing import tarrifs which encouraged imports while our people remain unemployed. That was the policy of the UNP.

Already in Sri Lanka the rich are stinking rich with salaries of a million or more a month in a country where the masses get only a paltry twelve or eighteen thousand a month. In Golden Key the Deputy Chairmen- seven or eight of them are alleged to have drawn salaries of three million rupees plus perks a month.

The Rajapaksa Government has attempted to re establish these activities, but once entire Departments are sold off and dismantled they cannot be easily set up again. It was the process of privatization and the reduction of public sector activities as advised by the IMF, which was followed by the UNP that caused this disaster. President Rajapaksa has decided that there will be no privatization, but the damage has already been done by the UNP “”…”

by President Jayawardena and Prime Minister Wickremasinghe.As an Administrator who struggled hard to establish this development infrastructure and also to make it work efficiently to serve the public I am saddened by the destruction that has been done by the UNP during the period it was in power. It was a difficult task to attend to development work. It pains me that all what we fought for then were really undone by the UNP rule. It will takes not years but decades to re establish the lost development infrastructure. People have to be thankful to the Rajapaksa Government for trying to build up the lost infrastructure. People have to live in hope that President Rajapaksa will re-establish this lost developmental infrastructure in full.

Garvin Karunaratne, Ph.D.

Former Government Agent, Matara District. 19/03/2010 All quotataions are from my book:How the IMF Ruined Sri Lanka & Alternate Programs of Success, Godages

3 Responses to “The Ever Increasing Cost of Living. Is there a Solution?”

  1. Geethal Says:

    What a lot of common sense there is in this article. Also it indicates the commitment that top administrators had for the lot of the people. Also, how clearly he writes!

    Dr Garvin Karunaratne must be quite an elderly man by now since even I cannot remember some of those times that he recalls, although I was alive! Where he is a little off the mark is in exalting the current Rajapaksa Government. It seems to be a family concern and the family will reap the benefits.

  2. Samson Says:

    Good article Dr Karunaratna. As explained the present government seems to be concerned about it and is capable of fixing some of the problems.

  3. nilwala Says:

    An excellent article by Dr. Karunaratna on a persistent problem of the ever increasing COL and the focus on the government which is always blamed for it, while it is the private sector that is the real culprit in the background. We were recently in Anuradhapura for several days and returning to Colombo via even the lesser roads, the wayside stalls were well packed with produce and it was gratifying to see this. Giving a ride to a farmer who was waiting for a bus to Eppawala, we were able to chat with him and ascertained that he makes Rs.35/kilo of rice and that the current situation for the paddy farmer was”very good”. The mark-ups in prices in the city markets is what should be looked at in attempting to resolve the COL issue with regard to produce.

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