Can reining in prices lead to raising up hopes?

  • The Government’s price controls and the immediate future of the consumer and the retailer

By Sumudu Chamara

The past few weeks have been quite stressful for Sri Lankan consumers due to the spate of price hikes and shortage of several essential goods. While the shortage of some goods was a result of low production/importation, according to the authorities, it is a fact that some traders attempted to hoard goods and create an artificial shortage to increase prices.

During the past few weeks, there was an astronomical increase in prices of sugar, rice, vegetables, and fruits, until the authorities decided to strengthen laws against those selling goods at higher prices. There was also a severe shortage of liquid petroleum (LP) gas and milk powder. Even though the situation is stabilising to a certain extent, according to media reports, the supply has not yet been restored to fully meet the demands of consumers.

There were also allegations that certain types of medicines and medical equipment were also sold at exorbitant prices. In addition, the prices of several types of goods, such as soap and biscuits, also rose, even though these price increases were not discussed as much, in comparison to prices of essential goods.

However, by the time the authorities took measures to address this situation, the soaring prices had already dealt a heavy blow to pandemic-affected consumers.

Laws and regulations

In light of the massive opposition expressed by a large number of groups besides the general public, last week, the Consumer Affairs Authority (CAA) stipulated maximum retail prices (MRPs) for rice and sugar.

On 2 September, the CAA issued two extraordinary gazette notifications in this regard, as per the powers vested in it by Section 20 (5) of the CAA Act No. 9 of 2003. Both the notifications are applicable to importers, suppliers, producers, distributors, and traders, and came into effect the same day.

According to the CAA, the wholesale price set for white sugar (imported) is Rs. 116 per kilogramme (kg). The MRP set for unpacketed white sugar is Rs. 122 per kg, while the MRP for unpacketed brown or red sugar is Rs. 125 per kg. For packeted sugar, the CAA had set an MRP of Rs. 125 per kg of white sugar, and Rs. 128 per kg of brown or red sugar.

When it comes to rice, the CAA had declared MRPs for keeri samba, white/red samba – steamed/boiled (excluding suduru samba), white/red nadu – steamed/boiled (excluding mottaikarupan and attakari), and white/red raw rice. Their retail prices (per kg) were Rs. 125, Rs. 103, Rs. 98, and Rs. 95, respectively.

The CAA also prohibited the levying of additional charges besides the price of the weight of the above-mentioned varieties of rice.

In addition, on 4 September, under Section 142 of the National Medicines Regulatory Authority (NMRA) Act, No. 5 of 2015, the MRP for fingerprint pulse oximeters was set at Rs. 3,000.

Meanwhile, after a meeting held on 3 September, the State Ministry of Co-operative Services, Marketing Development, and Consumer Protection, headed by State Minister Lasantha Alagiyawanna, said that the amendments to the CAA Act would be tabled in Parliament today (6) and that fines imposed for selling goods at higher prices would be revised. These amendments are applicable to both individual businesses and companies.

The minimum fine imposed on an individual business for a first-time offence would be increased from Rs. 1,000 to Rs. 100,000, while the maximum fine for an offence of the same nature would be increased from Rs. 10,000 to Rs. 50,000.

When it comes to a second-time offence by an individual business, the minimum fine would be increased from Rs. 2,000 to Rs. 200,000, while the maximum fine would be increased from Rs. 20,000 to Rs. 1 million.

With regard to companies, it was reported that the minimum fine imposed on a company for a first-time offence would be increased from Rs. 10,000 to Rs. 500,000, while the maximum fine for an offence of the same nature is to be increased from Rs. 100,000 to Rs. 5,000,000.

The minimum fine imposed on companies that have committed such an offence for the second time would be increased from Rs. 20,000 to Rs. 1 million, while the maximum fine would be increased from Rs. 200,000 to Rs. 10 million.

Consumers’ rights

As far as consumers’ rights are concerned, Sri Lanka is going through an extremely difficult time, even though the Government has taken certain steps to curtail the sale of food items at higher prices.

Some consumers’ rights activists and Opposition parties claim that the pandemic-hit consumers are going through one of the worst periods in recent history. They also claim that the issues at hand are whether the relevant laws and regulations would be adhered to by retail sellers that deal with the general public, who would have to purchase goods at whatever the prices they are told when there is limited supply, and also whether there is a strong mechanism to enforce the law against the sellers who sell overpriced goods.

Speaking of the state of consumers’ rights in the country, consumers’ rights activist and Movement for the Protection of Public Rights (MPPR) Convenor Asela Sampath, told The Morning that even though such consumers’ rights-related issues arose in a context where the people have lost their income and are stuck in homes owing to the pandemic, the social discourse about consumers’ rights that has begun, is a positive development.

Adding that increasing fines imposed on those selling goods at higher prices is a reactive measure that takes place once an offence has been committed, he opined that what should actually occur is taking preventive measures to protect consumers, for which a national-level campaign is necessary.

Moreover, he said that the majority of the general public are not aware of what steps they can take as consumers in the event of an injustice. In this context, according to Sampath, it is also necessary to raise awareness among the people. He also opined that earlier, Sri Lanka did not give adequate recognition to consumers, or the concept of the general public being consumers.

He added that one of the reasons why the existing consumer protection mechanism has not been able to adequately protect consumers is the outdated laws. Sampath said that the CAA Act was promulgated as far back as in 2003, and that the Act does not include regulations to properly address the concerns of today’s consumers.

He added: “Times have changed. How can we address consumers’ rights-related issues in 2021 with an Act that was enacted in 2003? Unfair trade practices have become more prevalent; but we do not have updated laws to combat them.”

Speaking of the sugar price issue, Sampath said: “The gazette notification sets maximum prices for importers of sugar and wholesale sellers. But the majority of sellers who sell sugar are retail sellers, not wholesale sellers, and the majority of the general public purchase sugar from retail stores. This retail sale process is what is prevalent in the country; most of the time, the general public do not receive the said relief. To obtain sugar at the declared prices, the consumers have to purchase sugar from Sathosa outlets.

“Sathosa has more than 500 branches in the country; however, that is to serve over 20 million people, and it begs the question as to how practical it is to purchase sugar at the newly declared prices. People living in remote areas where there are no branches of Sathosa are more likely to face difficulties.”

He alleged that the Government was aware of the recent wheat flour price hike, but chose not to tell the people or the media about it.

“I revealed this to the country, and the relevant company claims that they have revised the increased prices.

However, so far, the Government has not made any statement in this connection. Some traders have already charged the increased prices from bakery and restaurant owners, but these parties will not receive the extra money they paid.
“Therefore, we have to understand that in order to give actual relief to the general public, we have to ensure that these rules and regulations are followed at all levels, including small retail stores located in villages. In addition to the rules and regulations, there should be a proper mechanism to regulate these stores.”

Sampath claimed that in addition to outdated laws, the lack of officers available to monitor the traders who sell goods at higher prices is another issue that has crippled the existing consumer protection mechanism.

Speaking of the factors affecting the enforcement of rules and regulations at different levels of distribution of goods, Sampath alleged that the CAA workforce is inadequate to monitor sellers, and that at present, it has only around 200 officers tasked with actively protecting the rights of more than 20 million consumers. He further said that even though requests were made to recruit more people for CAA’s provincial-level activities when the Government recruited graduates for the public sector, those requests were not taken into account by the authorities.

“Had such measures been taken, there would be officers to work at the village level,” he opined.

The Morning’s attempts to contact CAA officials and State Minister Alagiyawanna to inquire what sort of actions would be taken to ensure the adherence of the new/revised regulations, were not successful.

Covid-19 and international food markets

Even though price hikes, especially unauthorised price hikes, are generally not welcomed by the general public, it must be accepted that the country’s production, especially in terms of food, has declined due to the pandemic, while the importation of some essentials has also come to a halt. The situation in other countries is not very consumer friendly either.

According to the Food and Agriculture Organisation (FAO) of the United Nations (UN), the global food prices are on the rise. FAO’s Food Price Index shows that since May 2020, food prices in international markets have increased by around 40%. Prices of vegetable oils had gone up by almost 110%, a significant price increase compared with other food items.

However, according to an article published on the International Food Policy Research Institute (IFPRI) website about the matter, international food prices have not reached historical heights, although they have risen close to the levels reached during the food price spikes of 2007-2008 and 2011-2012. The IFPRI also claimed that there is no reason to panic as far as the international food market is concerned.

The IFPRI added: “A bigger concern is the sharp rise in domestic food prices in many countries, especially low-income countries, over the past year. According to the recent World Bank (WB) report ‘Global Economic Prospects (June 2021)’, rising food prices have been the main driver of overall inflation, which was already high in those countries prior to the pandemic.

“Low-income countries are most affected by the rise in international food prices. In these countries, food accounts for about half of consumption baskets and 20% of imports. Rising agricultural commodity prices in world markets, therefore, tend to have a significant impact on domestic food price inflation in these countries. Low-income countries have also been hit hard by the global recession during 2020, driving down the demand for their exports and, lacking access to sufficient contingency finance, causing their exchange rates to depreciate. This further pushed up the cost of imported food.”

According to the said WB report, even though food prices have almost doubled since 2019, the price of energy and other goods and resources have not increased.

It is yet to be seen whether the general public would actually benefit from the steps taken by the Government. It is the major concern of all consumers, as selling goods at exorbitant prices, despite the existence of laws and regulations prohibiting this, has happened in Sri Lanka previously.

However, increasing food prices is a reality that has to be dealt with, and even though the Government took some measures to control it, inflation was almost always on the rise, even before the pandemic. According to the Department of Census and Statistics, month-on-month inflation had climbed to 6% in August.

The least the Government can do is to ensure that at least essential goods are not overpriced. However, strengthening laws and regulations is merely the first step; it is their proper implementation that will bring actual relief to consumers.