Sri Lanka nears complete economic meltdown as food shortage worsens

After its foreign currency reserves dropped to USD 1.6 billion in November last year, Sri Lanka’s economic crisis has snowballed at an alarming rate with acute shortage of essential commodities, food and fuel

January 21, 2022 by Peoples Dispatch
Food crisis Sri Lanka
(Photo: via Tamil Guardian)

Sri Lanka’s accelerating economic crisis may be leading to a complete meltdown as the country’s stocks of food and fuel are running out causing alarm across several sectors. At present, Sri Lanka’s total foreign debt obligations due in 2022 total around USD 7 billion, including bond repayments of USD 500 million in January and USD 1 billion in July.

The COVID-19 pandemic has led the Sri Lankan economy to the worst contraction ever recorded in its history, resulting in widespread job and earnings losses. People have registered their dissatisfaction with the government’s policies and inaction over the socio-economic situation through protests. Farmers, public sector employees, power sector workers, doctors, students, and teachers have staged demonstrations over the past three months to demand payment of wages, salaries and basic services. 

Sri Lanka’s foreign exchange reserves fell to USD 1.6 billion in November, triggering alarm across sectors as it severely impacted the country’s import capacity. Through a currency swap agreement signed with China in March last year, Colombo was able to raise its forex reserves to USD 3.1 billion in December, however, the situation has not improved materially on the ground.

The current crisis has taken a toll on the people, especially the working class citizens who are faced with an acute shortage of food, record inflation at 11.1% and regular power cuts.

No crop in the farms, no bread in bakeries and no vegetables in the kitchen

Farmers across several districts in Sri Lanka have been holding protests since November last year to raise their concerns over the significant crop failure that the country’s agriculture sector is currently facing. In April 2021, the Gotabaya Rajapaksa government banned the use and import of all chemical fertilizers in a bid to promote 100% organic farming in the country. The ban was later reversed, however, the move has already impacted the yield of Maha (September to March) season in many areas.

On December 29 and 30, paddy farmers in Badulla and Anuradhapura district staged a protest demanding compensation for their crops damaged due to the lack of fertilizer as promised by the government. 

According to professor Saman Dharmakeerthi at the Faculty of Agriculture, University of Peradeniya, the current shortage of non-durable farm products like vegetables is likely to increase as the country may see crop failure of at least 50% by the end of the Maha season in March.

He explains, “Despite much attention from the government, it failed to provide essential agro-chemicals and fertilizers at least to the paddy sector of Sri Lanka. Hence, paddy fields are in a pathetic situation. They paid even less attention to vegetables, root crops and other field crops such as corn.”

The food crisis in Sri Lanka has affected all sections of society. People have been lining the streets in recent months to purchase essential food items like cereals, vegetables and bread as the supply is gravely reduced. The rising prices of necessary commodities is also due to the central bank printing money to keep interest rates low which has triggered excess credit and forex shortages.

On January 7, the president of the All Ceylon Bakery Owners Association, N K Jayawardena, told the press that the situation was dire for the bakeries. He said, “The companies said they can give us as much flour as we want, but the issue is with dollars. They told us that they only get 10 percent of the dollars they need. So what are they going to do?” 

Besides bread, shortage of primary raw material like paddy and vegetables has affected dependent sectors such as the restaurant industry, where both service providers and the customers are facing the brunt of the food crisis.  

President Rajapaksa attempted to introduce price controlling policies in September 2021 with a price cap covering items such as sugar and rice. However, the move pushed the country’s food stocks into the black market, further raising general prices once the price caps were removed.

Last month, the All Island Canteen Owners’ Association (AICOA) of Sri Lanka warned that more than 80% of canteens and hotels are on the verge of shutting down due to the increasing prices of liquefied petroleum gas (LPG) and ingredients such as vegetables and meat.

Restaurant worker Kapila Ratnayake told The Morning that the present crisis is a result of  the rapid and unbearable increase in prices of vegetables, which are the main ingredients for any preparation at restaurants.  “Even if the price was not an issue, there is a very limited supply of vegetables and we cannot buy more than 50-60% of the amount of vegetables we used to buy,” said Ratnayake.

However, domestic crop failure is not the only reason behind Sri Lanka’s current food crisis. The Rajapaksa government’s ad hoc policies, as with the case of organic farming, have been criticized for their discriminatory and short-sighted nature.

On January 4, the Sri Lankan government unveiled a USD 1 billion economic relief package following a series of protests in December over rising prices and unpaid salaries. The government has promised to raise civil servants’ salaries and pensions, remove some taxes on food and medicine, and provide cash for the two million people who rely on income support as a part of the scheme.