Securing Food Security

Originally appeared on The Morning

By Dhananath Fernando

World Food Day falls on 16 October. In Sri Lanka, food security has been a topic of discussion for a considerable period of time, especially gaining prominence during the Covid-19 pandemic. 

During that period, there was confusion between food security and self-sufficiency. Instead of focusing on ensuring food security, the emphasis was placed on self-sufficiency, with the belief that all food consumed in Sri Lanka should be produced within the country. There were even discussions among Sri Lankans about shifting from using lentils (dhal) to locally-grown maize.

After approximately two years, when we assess the Global Food Security Index report, Sri Lanka is ranked 79th out of 113 countries. Food security isn’t solely about achieving self-sufficiency by producing all the food within the country; it encompasses the affordability, availability, quality and safety, as well as a nation’s exposure and resilience to natural resource risks.

Prior to the inclusion of the natural resources and resilience component, Singapore led the Global Food Security Index. However, after adding this component in 2022, Singapore dropped to the 28th position, with Finland now topping the Index. India is in the 68th position, Nepal in the 74th position, and Bangladesh in the 80th position, just one spot below Sri Lanka.

Due to the economic crisis, characterised by high inflation rates, particularly in food prices, the number of people who were food insecure exceeded six million. This number has now decreased to less than four million, emphasising the significant role economic stability plays in ensuring people’s food security.

Sri Lanka’s food security has always been a challenge due to economic policies that have been against market dynamics. Monetary instability resulting from the unfettered levels of money printing led to food inflation, affecting the affordability of food. 

The Government’s imposition of price controls led to shortages of protein sources such as eggs and chicken, further impacting the availability of food. Additionally, the Government imposed a Special Commodity Levy (SCL) on selected food items as a protectionist measure, maize being a prime example, driving up prices. 

Maize is a key raw material for the aquaculture and poultry industries. Price volatility in maize also affects the prices of poultry products and other locally consumed protein sources, sometimes impacting the competitiveness of our agricultural exports. 

The Government’s approach, whether through higher tariffs or import bans, is equally detrimental. Our food security structure is simply unsustainable, with weak and unpredictable supply chains and inconsistent policies.

Ensuring food security involves addressing both macro and micro issues. A holistic approach, taking into account land rights, is essential. The documentary recently released by the Advocata Institute titled ‘Land, Freedom and Life’ highlights the challenges faced by farmers due to the absence of land rights, hindering their access to capital or technology to enhance productivity.

In addition to land rights, water management is another critical aspect that needs serious consideration. Currently, our water usage in paddy cultivation is unsustainable. We consume approximately 1,400 litres of water to produce 1 kg of rice. Even if we price a litre of water at 50 cents, the cost of the rice we consume would significantly surpass current prices. 

With the challenges posed by climate change, future water availability cannot be guaranteed. Despite the number of people experiencing food insecurity declining, our approach in food production is not sustainable. Another local or global shock could easily set us back.

The Government has attempted various approaches such as providing subsidies for farmers, free meals for school children, and free nutritional packages for women during maternity. However, in order to truly  address Sri Lanka’s food security crisis, a multifaceted approach is required. 

This should begin with macroeconomic stabilisation, providing land titles for farmers and agro-companies to enhance agricultural productivity, reducing labour costs in agriculture, recognising the interconnectedness of markets, and allowing market forces to operate.

Until these issues are resolved, World Food Day will remain a day for discussing problems without implementing solutions.

Ceiling price to floor bottled water industry

Originally appeared on Daily FT

By Joshua Karpinski

The recently instilled price control on bottled water seems like a positive for all consumers. How can a lower priced good hurt society? A recent report by the Advocata Institute “Price Controls in Sri Lanka” finds that price controls are of limited value in reducing costs. The report claims that price controls can cause significant welfare losses, deterioration in product quality, reduction in investment and, in the long run, higher prices. Hence, one must approach production and economic fundamentals to observe a price controls’ potentially detrimental outcomes.

As per the extraordinary gazette notification released by the government on the 5th of October 2018, the maximum retail prices of bottled water are as follows:

As shown (table), the new ceiling prices shave off a fair chunk of the bottled water seller’s margin (for instance, the cheapest common 500ml brand retailed at Rs. 45.00). This falling margin trickles down from the retailer/wholesaler to the distributor and eventually the producer (bottler). As with any economic activity, the goal is to generate profit. This aim remains with the producer to the retailer, and a ceiling price disrupts economic activity. We must observe how this industry operates.

The common water bottler sources his PET (polyethylene terephthalate) bottles from local plastic producers or importers. These bottles are a product of the petrochemical industry, a sector of rising cost due to increasing petroleum prices, internationally. Additionally, the ailing Sri Lankan Rupee has done no favours to importers.

The water is sourced from dug wells to springs and deep wells, and various brands treat the water using different techniques (like pricey reverse osmosis or cheaper chemical treatment). The water and the PET bottles need to abide by a predetermined SLS criteria and Health Ministry specifications. Additionally, they undergo licensing (with periodic renewals), site inspections, water and product testing and random checks (by the Consumer Affairs Authority).

The finished water bottles then make their way to wholesalers or retailers, to be purchased in large quantities (for events or corporates) or shelved at boutiques and supermarkets. This is done with the help of distributors, who range from large corporate in-house logistics departments, to the DIMO Batta owners outstation. This price control lowers the distributor’s margin, potentially removing the smaller distributors altogether.

The larger sellers, like Keells with “K Choice” water or Cargills’ “KIST Knuckles”, vertically integrate the entire process. It will no longer be in the interest of these supermarket oligopolies, to use up shelf space for rival brands (this is already apparent in some Keells outlets) and eventually the consumer suffers with few to no brand alternative. The price ceiling acts as a barrier to entry for new producers, as now they do not have the freedom to charge prices in line with economic forces. Existing producers may be forced out of the market or absorbed by larger entities. In economic terms, consumer choice falls.

A shift to aggressively cut costs could lead to lower quality plastic, (albeit still in line with health standards) being used and recycled. Furthermore, cheaper alternatives to water purification like chemical treatment will become the standard, despite poorer taste and lower healthy mineral content. A fall in research and development investment will lower innovation into current and future water products and services and this too will be at cost to the consumer.

Lower priced bottled water leads to higher demand and consumption. This does not bode well for the environment, owing to more plastic use and waste. Sri Lanka annually imports 9,600 tonnes of raw virgin plastic (PET) to manufacture bottles, packaging and for other requirements. 70% of this is processed and consumed as an end product in Sri Lanka and the used plastic waste creates monstrous environmental issues. Although recyclers are trying to address this issue, the price control in question could severely contribute to even greater plastic waste.

Tap water is the cheapest water option available. It usually goes through a process of basic filtration techniques like flocculation, which adds chemicals to the water to get particles to coagulate and float, so that they can be removed; sand filtration, which filters out large pieces of debris; or chlorination, which adds chlorine to kill bacteria and microorganisms. Despite tap water being considered drinkable (to some, purely out of convenience), it can lead to numerous problems. Chlorine is not ideal for human consumption (while our bodies can technically handle it, chlorine can lead to a variety of health complications and is potentially carcinogenic). The presence of microbes and impurities from pipes add health issues too. These risks have not gone unnoticed as we observe tourist forums and foreign travel bloggers strongly urging future visitors to avoid Sri Lankan tap water and to always opt for sealed bottled water. This leads on to the variety of bottled water available to consumers.

• Artesian Water: Water from a well that taps a confined aquifer (a water-bearing underground layer of rock or sand) in which the water level stands at some height above the top of the aquifer.

• Spring Water: Water derived from an underground formation from which water flows naturally to the surface of the earth.

• Purified Water: Water that has been produced by distillation, deionization, reverse osmosis, or other suitable processes.

• Distilled Water: Water that has been vaporized into steam, then cooled to re-condense it back into water. The water's minerals are left behind, leaving only pure tasting steam-distilled water.

• Mineral Water: Water that contains no less than 250 parts per million (ppm) total dissolved solids (TDS).

It is evident that a variety of water sources can be tapped and different purification methods can be employed to produce consumable water. This “clean, drinkable water” is then bottled and intensely marketed across a spectrum of brands, along with their source and unique purification methodology.

Below, tabulated, is a collection of some local branded water. (Source: bottle label/bottler website)

These bottles contain drinking water that was sourced differently. It was then processed (filtered/purified) differently. The plastic it is contained in is not standardized (it just has to fulfil a minimum health and quality requirement). These aspects of a seemingly simple good exposes variety with differentiability, and this may sway demand for one brand over the other. This should influence price and create a variation of prices for different brands, at the stimulus of consumer choice.

However, in essence, this price control has homogenized a differentiable good. The consumer now pays one price across a range of bottled water.

The price ceiling, although seemingly to help us buy cheaper bottled water, could cycle back to hinder the bottled water industry from giving the end consumer the best possible product. Water is not a scarce good (yet) in Sri Lanka and there are plenty of existing alternatives to bottled water. Has the government truly taken this into consideration? How have the new prices been calculated? What research has been carried out? Has a cost benefit analysis been performed? If so, where is it? Where is the data? Despite multiple attempts to communicate with senior employees at the CAA, we failed to gather any meaningful answers, useful information nor a compliant contact. Why does the CAA pass the buck to its ministry who in turn has no one willing to answer these queries? Does society truly benefit from this seemingly positive, yet irrational gazette? Who really stands to benefit from this decision in the long run?