ISSN: 1391 - 0531
Sunday October 7, 2007
Vol. 42 - No 19

Hit so hard, they can hardly say paan

  • Prima blames poor crops and drought for flour price hike
  • Bakery owners blame flour price hike for bread price hike
  • Govt. says no price control over Prima

By Malik Gunatilleke, Pic by Gemunu Wellage.

The government has no immediate plans to control the price of bread following the rapidly increasing world market prices of wheat flour, an official said. With wheat grain prices in the world market shooting up by 25% within the past month, Prima Ceylon (Pvt) Ltd (PCPL) increased the price of a kilo of flour by Rs. 13 which was followed by bakery owners upping the price of bread to an unprecedented Rs. 35.

Trade and Consumer Affairs Ministry Secretary Dr. R.M.K. Ratnayake told The Sunday Times that the government had little say over dictating pricing terms to Prima as it was the only company that imported wheat into the country. He said although the government had warned Prima Company that it would directly import wheat flour if the company did not reduce its prices, the government had failed to find any exporters willing to sell flour at a cheaper price.

“If we could buy the commodity at a cheaper price from any country, we would certainly do so. However, we found that there were no exporters willing to do so,” he admitted. In 1989 the then government approved a pricing formula for bread which is still effective today. According to this pricing formula, additional costs such as raw materials, transport upto Trincomalee (where the Prima mill is situated) and a further 25% for milling and packaging is added to the original flour import price.

“The government does not handle the pricing on bread. Instead the bakers independently implement the formula agreed upon,” he said. Even though the agreement is due to expire next year, Dr. Ratnayake said the government is unable implement its own pricing formula or attempt to control pricing due to the necessity of the product and the lack of other importers of flour.

“If the bakers or the importers decide to cease their operations, neither the people nor the government will have an alternative supply of wheat and bread. It is not realistic for the government to pressure companies to reduce prices given the consumer-dependence on its products,” he said.

However, at the weekly cabinet briefing, Media Minister Anura Priyadharshana Yapa said the government would bring amendments to the Consumer Affairs Authority Act no.9 of 2003.The 77th clause of this Act states that companies with monopolies in their sectors would be exempted from any price control by the government.

Mahindananda Aluthgamage, Non-cabinet Minister of Power stated that the UNP government and then Minister of Trade and Consumer Affairs, Ravi Karunanayake were to be blamed for the increase in bread prices as the Act was implemented when they were in power.

On the other hand Prima sources defending the price hike say factors such as increasing fuel costs, the depreciation of the Sri Lankan Rupee and deteriorating weather conditions in major exporting countries necessitated the price hike. They said the pricing is decided in Singapore and is affected by changes in the world market pricing on wheat, the value of the dollar and fuel prices.

However PCPL officials have failed to comment on the allegations made by the government Ministers about the Consumer Affairs Authority Act of 1993, as they were not familiar with its contents. They say the main reason behind the price hike was the shortage of wheat grain in the market following drought conditions in Ukraine, Europe, Canada and Australia, four of the world's leading wheat producing countries.

They say the situation was made worse after many countries limited their exports in anticipation of product shortages in the domestic market and large scale importers such as India and China increasing their demand. Meanwhile, the prices on a range of food items such as Kottu, Parota, Godamba rotti, Hoppers, String Hoppers, Pittu and Poll rotti are set to take off as restaurant owners struggle to maintain profits.

“The increase in wheat flour price this time is far too much for us to keep the prices as they are. If it was an increase of two or three rupees we could have sold food items at the same price. But the Rs.13 hike has forced us to increase our prices from between one to five rupees depending on the food item,” said a food outlet owner.

Another owner of a popular restaurant in Colombo anticipated a huge loss of business due to the increase in their prices.“I am compelled to increase even the price of a simple Parata by one rupee and kottu by five These increases coupled with other price hikes will naturally hit our businesses in the long run,” he said.

Meanwhile, Bakery Owners’ Association chief, Parakrama Dassanayake said the price increase of wheat flour compelled them to increase bread by Rs.4.33. In addition the price increases of Margarine, Gas and Diesel pushed them to increase a loaf of bread by Rs.5.52.“We decided that we will only increase it by Rs.5 despite the need for a higher increase,” he said.

K. Velayudan of the Lanka Jathika Estate Workers’ Union said estate workers, whose staple diet was made of wheat based food items, would be the most affected by these recent hikes.“Many have rotti or bread for all three meals,” he said. All Ceylon Estate Workers’ Union spokesman R. Chandrasekhar said the government had been insensitive to the needs of estate workers when taking decisions on price hikes and warned that it could lead to a break down of the entire estate sector.

“If workers are left hungry because they cannot cope with the ridiculous pricing, they would obviously seek alternative livelihoods,” he said.

I took no bribe says Ravi

United National Party MP Ravi Karunanayake yesterday denied government accusations that he took a bribe of Rs. One billion to add section 77 to the Consumer Affairs Authority Act no.9 of 2003, and thereby help the country’s wheat import monopoly of Prima to fix prices.

Mr. Karunanayake said that he is suing Minister of Trade and Consumer Affairs, Bandula Gunawardena, Media Minister Anura Priyadharshana Yapa and Non-cabinet Minister of Power, Mahindananda Aluthgamage for Rs. three billion each for allegedly making reckless accusations.

Earlier this week at a post cabinet news briefing, Minister Priyadharshana Yapa accused ‘some one in the UNP’ of taking a bribe to add section 77 which would allow companies such as Prima Ceylon Ltd to dictate its own pricing while non-cabinet ranking minister Mahindananda Aluthgamage said details of a deal between Mr. Karunanayaka and the Prima to provide them the special facility has been disclosed.
However, Mr. Karunanayake said that the section was added to the Act in 2001 by then Minister of Trade and Consumer Affairs, Rauf Hakeem while it was approved by the Secretary Treasury, P.B. Jayasundera.

“When I became Minister of Trade I was very unhappy about this section and tried to have it removed on many occasions. However, I was unable to do so because the previous government had already entered into the agreement,” he said.

He said that the government should not blame the UNP for increasing bread prices when it is impossible to control world market prices and that government Ministers should not make blind accusations without proper knowledge on the matter.

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