Investigation on flour manufacturers, pricing by CAA

The Consumer Affairs Authority ( CAA) is conducting an investigation on wheat flour manufacturers and price increases in wheat flour. This came after State Minister of Internal Trade and Consumer Welfare Anura Priyadarshana Yapa ordered an investigation when the manufacturers refused to sell wheat flour at a certain price instead of increasing it over the past three months.

As the CAA did not want wheat flour producers to increase the prices since last December, the companies had sold unpacked or 'loose' wheat flour at retail shops.

This came to light when certain customers noticed some supermarkets recently selling ' loose' flour at Rs. 87 which is wholesale price for 1 kg bags of wheat flour, generally sold at Pettah. Packeted flour, which was usually sold at between Rs. 110-130/kg, was not available at such outlets during the past few weeks. Loose flour was previously not available at most supermarkets – virtually none. Upon casual inquiry from supermarkets customers were informed about an ongoing dispute between CAA, Government and wheat flour companies - Prima and Serendib as they couldn’t agree on a price. A high tax applies on wheat flour (effectively around 85 per cent) while a lower tax (effectively around 23 per cent) applies on wheat grain. This results in a high effective protection for domestic wheat millers who import the grain and grind it to flour.

"We have a monopoly in wheat flour manufacturing. We feel that the manufacturers are selling this commodity to the local market at much higher prices than that of the world market prices. I have ordered the CAA to conduct an investigation,” Mr. Yapa told the Business Times. He said that during the last elections the manufacturers tried to increase the price of a kilo of wheat flour by Rs. 8 but did not go through with this decision.

He pointed out that the government has cut the import tax of 35 per cent on all imports but one large manufacturer flooded the market with its own product called ‘ Hammer’ to stop new importers entering the market. “This was to discourage new entrants into the market. Now anyone can import wheat flour.

But the large manufacturers don’t want others to step into the market. They want to keep the monopoly intact," he accused. Mr. Yapa stressed that wheat flour producers don’t reduce their prices when international prices are low. World wheat prices (along with other commodities) have fallen 50 per cent since 2013 but the price of bread in Sri Lanka keeps rising.

He reiterated that there will be no price ceiling introduced, contrary to the decision by the last government to do so.

The millers earn a major surplus profit (called “rent” in economics) due to the inconsistency in taxes between grain and wheat flour. The local millers sell flour at high prices because the duty keeps the price of imported flour high. The obvious irregularity is due to lobbying by industry groups to protect the local industry.

Mr. Yapa stressed that the job of the CAA is to protect the consumer. However, flour producers say that CAA’s job can be done better. “Although the price is decided on international commodity prices, it does not apply in Sri Lanka. The price is controlled by the Government, therefore there is no flexibility in the pricing mechanism,” a producer said.