Current Food Inflation in Sri Lanka: Causes, Consequences and Way Forward

Originally appeared on the Morning

By Thilini Bandara

In recent times, rising food prices have become a global phenomenon owing to various factors including the Covid-19 pandemic, climate impacts, the Russia-Ukraine war and the downturn of the global economy. These have played a part in Sri Lanka recording the highest food inflation rate of 94.9% in September 2022 according to the Colombo Consumer Price Index—a rate which averaged at 9.39 per cent during 2009–2022. The World Bank’s food security update highlights  Sri Lanka among the top 5 countries with the highest food price inflation in September 2022. This article explores the recent trends, causes and consequences of food inflation in the country. 

Fluctuation of food prices over time

Advocata Institute’s Bath Curry Indicator (BCI) tracks the monthly changes in the retail prices of a limited basket of goods normally consumed by Sri Lankans as per the 2016 Household Income and Expenditure Survey (HIES). 

Accordingly, the BCI supermarket prices recorded a 78% increase between September 2021 to 2022.  However, there is a slight decrease in prices on a month-on-month basis of 7.63% in September 2022 compared to August 2022. Further, when considering the BCI-Supermarket prices, it has recorded an 83.88% increase between August 2021 to August 2022 on a year-on-year basis, while showing a slight decline of 6.59% between September 2022 and August 2022. 

Table 1 depicts the price fluctuations in terms of BCI and BCI-Supermarket from 2019 to 2022.

Table 1: Price fluctuation over time according to the BCI index

Causes of food inflation in Sri Lanka

At a glance, rising food prices can be attributed to disruptions in both global and local supply chains due to various factors that include the energy crisis, climate impacts, the pandemic and the Russia-Ukraine War. Additionally, domestic policy restrictions such as import bans of essential commodities, the rising cost of agricultural inputs, recent changes to agricultural policy, and the ban on chemical fertilisers and quick shift to organic fertilizer lowered agricultural production and heightened supply chain disruptions. 

Moreover, the expansionary monetary policy of the previous government through lowered interest rates and heightened money printing contributed to higher food inflation.

Additionally, due to the uncertainty surrounding imports entering the markets, traders must reassess their pricing decisions. This creates distortions in the marketplace and can lead to additional pressure on consumers. 

Consequences of food inflation

People living below the poverty line and middle-income groups with a fixed income are the most severely impacted by this high inflation. Food inflation rising rapidly in contrast to household incomes has widened the income gaps. It has further dealt a massive blow to the economic stability and well-being of the poor through poverty and malnutrition. A recent survey by the Sri Lankan Red Cross Society and the International Federal of Red Crescent Societies has revealed that 50% of households have reduced the intake of meat and fish, while 11% have completely dropped protein intake from their diets. Also, a survey conducted by WFP in September 2022, reveals that more than 1/3rd of Sri Lanka’s population is in food insecurity, while 79% of households are adopting food-based coping strategies to keep food on the table.  Moreover, the evidence revealed that even non-food expenditure such as education, housing, and health has lowered owing to rising food costs, which will lead to socioeconomic pressure.

Way forward

A recent report by the Food and Agriculture Organisation and the WFP highlights that the food security problem could be further heightened during the upcoming “maha” season between October 2022 – February 2023, if the country is unable to import sufficient amounts of rice and other food products to meet demand. In the absence of a sufficient supply of agricultural inputs such as fertilizers, pesticides, and other supplies, targeted assistance should be provided to farmers to increase domestic production and resilience of the agri-food systems. In fact, introducing incentive schemes, identifying special regions for off-season cultivation, implementing innovative food storage and preservation strategies, distributing farm inputs at subsidized rates, and promoting substitutes for imported items are some of the measures that can be implemented to address the food security problems. 

Targeted interventions should also be provided through social safety nets and humanitarian initiatives for low-income groups that are food insecure and require immediate assistance. Though funds for this have been already allocated from the 2022 interim budget, effective and efficient execution is required to identify the most vulnerable groups and provide them with the food assistance they require. 

References

Aneez, S. (2022). Crisis-hit Sri Lanka looks for foster parents to face malnutrition among children. Economynext. Available at: https://economynext.com/crisis-hit-sri-lanka-looks-for-foster-parents-to-face-malnutrition-among-children-101200/. [Accessed 17 October 2022]

CBSL. (2022). CCPI based headline inflation recorded at 69.8% on year-on-year basis in September 2022. CBSL. Available at: https://www.cbsl.gov.lk/sites/default/files/cbslweb_documents/press/pr/press_20220930_inflation_in_september_2022_ccpi_e.pdf. [Accessed 13 October 2022]

Economynext. (2022). Sri Lanka households drop meat from diet, slash drug doses as poverty worsens: survey. Available at: https://economynext.com/sri-lanka-households-drop-meat-from-diet-slash-drug-doses-as-poverty-worsens-survey-101259/.[Accessed 19 October, 2022]

FAO & WFP.(2022). FAO/WFP Crop & Food Security Assessment Mission (CFSAM) to the Democratic Socialist Republic of Sri Lanka. Rome: FAO & WFP. Available at: https://www.fao.org/3/cc1886en/cc1886en.pdf.[Accessed 17 October 2022]

OCHA. (2022). Food Security and Nutrition Crisis in Sri Lanka. OCHA. Available at: https://reliefweb.int/report/sri-lanka/food-security-and-nutrition-crisis-sri-lanka. [Accessed 17 October 2022]

Trading Economics. (2022). Sri Lanka Food Inflation. [online] Available at: https://tradingeconomics.com/sri-lanka/food-inflation. [Accessed 19 October 2022]

The World Bank. (2022). Food Security Update. The World Bank. Available at: Food-Security-Update-LXX-September-29-2022.pdf (worldbank.org). [Accessed 20 October 2022]

The opinions expressed are the author’s own views. They may not necessarily reflect the views of the Advocata Institute or anyone affiliated with the institute.

Thilini Bandara is a Research Analyst at the Advocata Institute. She can be contacted at [email protected]. The Advocata Institute is an Independent Public Policy Think Tank. The opinions expressed are the authors’ own views. They may not necessarily reflect the views of the Advocata Institute.