Friday, October 29, 2010

Rising bread prices expose trade vulnerabilities

By Amantha Perera | Inter Press Service

There was a time when being a breadseller here in Colombo enabled Charmindha to have modest dreams. But the teenager from Sri Lanka’s rural south has been seeing his daily earnings slide in the last two months, and indications are that’s not going to change anytime soon.

"My sales have dropped by about 20 percent," says Charmindha, who gets a two-rupee (2 cents) commission for every loaf he sells. In the past, he says, he would sell as much as 120 loaves each time he made his round on a motorbike through residential neighbourhoods here. "Now," he says, "if I do about 100 (loaves) it is a good run."

Major bakeries and bread manufacturers are having similar experiences. Bakery Owners’ Association President Newton Jayawardena tells IPS, "In the urban areas we have witnessed a drop in bread sales about 10 to 15 percent. In the rural areas its worse, we have witnessed a drop of about 25 percent."

For sure, the rising price of baked goods is largely to blame for their waning sales across the country. A month ago, a 450-gramme bread loaf cost 43 rupees (39 cents). Today its price is 46 rupees (41 cents).

Bakers say that they have had to raise prices for their products in part because of escalating world wheat prices. Jayawardena even says, "That is the only reason, there was nothing else."

But that may not an accurate statement. In fact, the government has imposed a tax of 10 rupees on every kilo of wheat imported in an effort to make locally produced rice more attractively priced in the market.

Sri Lanka’s latest rice harvest has been forecast to be a bumper crop of 2.54 metric tonnes.

In a country brief released earlier in October, the U.N. Food and Agriculture Organisation (FAO) said, "The Government has re-imposed an import tax of 15 percent on imported wheat to reduce consumption of flour and support rice prices in anticipation of the bumper Yala (second half of the year) harvest. Farmers are provided with fertiliser subsidies, which resulted in increased rice production."

"(A) bumper harvest has led to significant drop in rice prices," the FAO also said. "On the other hand wheat prices have increased, mainly due to policy interventions on wheat imports."

Indeed, as wheat and bread prices increase, rice prices are going in the opposite direction. Some rice varieties now cost 20 percent less compared to just a year ago, and as bread disappears from dinner tables across Sri Lanka, there can only be more rice on the plates.

As in other Asian countries, rice is a staple in Sri Lanka. But since the 1970s, bread has been part of breakfast and dinner for many Sri Lankans as well.

According to the Census and Statistics Department, a typical Sri Lankan household consumes on average about nine kilogrammes of bread and other wheat products a month. That’s much lower than the monthly rice consumption of 36 kg per household, but data show that with the exception of rice, bread outranks other food items in a Sri Lankan home.

Yet even bakers and baked goods sellers themselves are pessimistic of bread holding that position for long.

Bakery Owners’ Association officials say that in the poorer areas of the country, people already appear to be scratching bread off their shopping lists.

"In the urban areas, where the richer communities are, we still see people buying bread and other bakery products because of the convenience," says association secretary Rohan Hettiarachchi. "In the poorer areas, I don’t think people can afford to pay almost 50 rupees per loaf."

And much as they may want to, producers of baked goods would be unable to lower their prices unless the government gives the industry a generous tax break.

According to the FAO, global wheat production forecasts were at 646 million tonnes for this year, a five-percent drop from 2009. It blames this on the low wheat production in Russia, which has been much larger than the increased wheat outputs of the United States and China.

Last August, Russia banned wheat exports and reports indicate that the ban is likely to be in place for some time. That only means world wheat prices will stay high.

Rough estimates have the annual sales of the baked goods industry in Sri Lanka as reaching as much as 150 billion rupees (1.34 billion dollars). But industry insiders now say they may lose about 20 percent in profit in 2010 year compared to the 2009 figure.

Sri Lanka’s baked goods industry provides direct employment to at least 120,000 people, even as it indirectly supports other sectors such as transport, poultry growing, and dairy, according to the Bakery Owners’ Association.

Just a few months ago, it also supported the dreams of a young man from the country of someday making it big in the city. But even Charmindha has realised that he will have to find a new job soon if he wants his dreams to come true, bread just does not sell like it used to.


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