Will India’s cobra bite Sri Lanka’s cattle?

Originally appeared on The Morning

By Dhananath Fernando

• A ban on cattle slaughter could create a herd of new problems

Not long ago, India had a serious issue with snakes. Many people died, as a result of being bitten by a specific species of cobras. As a remedy to this problem the government of the day, proposed a cash reward system. A bounty was made available for every dead cobra. It appeared to be a good solution at the initial stage but later on the government realised the cobra numbers are increasing though people redeem cobras. Later on the government realised that entrepreneurial Indians were now breeding cobras as an income stream and they maintain breeding houses of the same type of cobras. As a result the government suddenly stopped the cash incentive system. Then the breeders did not have any financial incentive to keep them at their breeding houses. As a result they just released the cobras to an open environment which rapidly increased the cobra population and the problem became worse than ever before. This is called the “cobra effect”, where you bring a solution with good intentions but the outcome is a series of negative consequences far worse than the original problem. This is a story all Sri Lankan policy-makers should keep in mind, especially the ones who keep proposing the banning of cattle slaughter. Every ban so far has backfired economically as well as politically. The only bans which haven’t backfired are the ones which haven’t been implemented.

The former president proposed a ban of carpentry sheds and chainsaws in a move to protect the environment which didn’t get implemented. Then a ban on glyphosate was proposed. Recently, in addition to many import bans, a ban on sachets and a ban on chemical fertiliser have been proposed. The impact of these bans have been like a boomerang, making colossal losses to our economy, the livelihoods of the people and the political capital of the government which could have been invested to implement much needed macroeconomic reforms.

The cattle slaughter ban is most likely going to bring similar consequences. The biggest impact being farmers having the burden to maintain animals past their productive prime. This will significantly impact the productivity of the dairy industry. In the very likes of the cobra effect in India. Undoubtedly the policy is implemented with good intentions but merely having good intentions isn’t sufficient to the harms and consequences of these actions. Our politicians cannot just run away from these bad consequences without taking responsibility, just because their intentions are good. Governing Sri Lanka is not like the high school prefects checking for the uncombed hair or the bags of fellow students. We are a democratic country where the actions of policies determine the well being of people’s lives. Just to mention “we did it with good intentions without realising the bad consequences” is not an acceptable excuse at all.

With the ban on cattle slaughter, and the topic gaining national attention, it is sufficient for milk farmers to accelerate the selling process of cattle for slaughter. This will be fueled by the fear that they will lose out by holding on to cows in future. In the meantime our dairy industry which is finding it difficult to manage even with very high tariff protection will find it further difficult to sustain. This will greatly affect national milk production and the livelihoods of dairy farmers.

In the liquid milk industry, the output of the cow depends on the feed, temperature and protection from infections. Better the feed and lower the temperature (which avoids sweating of the cow) increases the output. Sri Lankan dairy farmers are already finding it very difficult to provide better feed for cows. According to data, in 2019 Sri Lanka had about 323,490 milking cows but the average output is about four to five litres a day where the global average is about 28 litres per day. In countries like Israel the output per day is as high as 40 litres.

It is a clear indication of how difficult it is for our farmers to provide adequate water and food for milking cows. So after a certain period most farmers recover money by selling it for meat. Otherwise economically it doesn’t make sense to keep them at home just feeding. Another aspect that must be explored is the impact on natural forests. Most of Sri Lanka’s forest reserves are facing dangers by cattle farms, especially in villages bordering sanctuaries. Cattle farmers let the cows enter protected sanctuaries for feed which then affects the natural vegetation of herbivorous animals such as elephants. This too is one contributory factor for human-elephant conflict where elephants come out of forest areas looking for food as a result of depleting vegetation.

On the other hand the male cattle or bulls will have a very short life span as maintaining a bull without the ability to sell doesn’t make economic sense. So illegal cattle slaughtering will increase. Already Sri Lanka’s domestic liquid milk supply is about 373 million litres and the local demand is almost twice that, which is 700 million litres. So the milk powder imports will most likely go up and employment will be affected. According to the EDB (Export Development Board) data, there are about five large companies, 10 medium-scale companies, and more than 1,000 small enterprises and seven tanneries that produce 25 tonnes of leather daily which brings in about $ 550 million worth of foreign exchange annually. This decision to stop the slaughter of cattle will have a significant impact on these livelihoods and Sri Lanka’s foreign exchange revenue will take a hit, especially at a time where we are desperately in need of foreign exchange.

Keeping money matters aside, from an animal cruelty perspective, this regulation will discourage farmers to take care of their cattle and keep them well-fed. This decision will further distort the incentives to provide proper protection and shelter for cows due to a lack of financial incentives. This is best illustrated by the situation in India. A similar policy decision by the Indian government on banning the slaughter of cattle has been one factor leading to vehicle traffic, in some areas due to the overpopulation of cows and cows inhabiting roads. In some cases the government has had to spend extra resources, building cow care centres as many cows were being mistreated.

In policy decisions “good intentions” is not the litmus test to decide which policy should get the priority. It is the cost benefit analysis, causes consequences analysis and factual and evidence-based research that should decide the implementation of a policy. Intentions are important but bad consequences such as the “cobra effect” can only be avoided by sensible well thought economic thinking.

The opinions expressed are the author’s own views. They may not necessarily reflect the views of the Advocata Institute or anyone affiliated with the institute.

Tariffs and the law of unintended consequences

Originally appeared on Sunday Times

By Aneetha Warusavitarana

The law of unintended consequences is a theory that dates back to Adam Smith, but was popularised by the sociologist Robert K. Merton. In short, the law explains the reality that when governments intervene to create a set of outcomes, as the theory of cetris paribus (holding other factors constant) cannot be achieved in a market situation - the result is a series of unintended consequences.

Colonial India and Cobras

This law is also known as the ‘Cobra Effect’, dating all the way back to when the British first colonised India. The British were understandably concerned about poisonous snakes in India, Cobras apparently being a source of some worry. The solution they presented was to provide a reward for every Cobra that was killed, creating a clear incentive for locals to capture and kill any Cobras in the vicinity. While this worked well in the short term, the British slowly realised that enterprising individuals were actively breeding Cobras; creating a very profitable business out of collecting bounties. Once this was clear, the British removed the bounty, and now as this was no longer a profitable venture, the breeders released all their Cobras. The final outcome of this was an increase in the general Cobra population, completely the opposite of what the intervention set out to achieve.

While this makes for a good anecdote, the economic realities of the law of unintended consequences are often more dire. Interventions into the market are often well-intended, but have the potential to backfire. A shining example of this is the case of tariffs. Forbes recently published an article which detailed the unintended consequences of a washing machine tariff imposed in the US. This well-meaning tariff was introduced to protect domestic producers in the US, and boost employment in that industry. If one evaluates the effectiveness of the tariff simply on those two criteria, then the tariff has been a resounding success; US washer and dryer industry created around 1,800 new jobs. This could easily be written off as a success story.

The Cobra effect on washing machines

However, the focus here is only on the producer, and the consumer has been removed from the narrative. The first unintended consequence was that as imported machines were now more expensive, domestic manufacturers could safely raise their prices, without fear of losing out on sales. The second unintended consequence was that dryers also became more expensive. As a complementary good to washing machines in the US, manufacturers of dryers saw this as the perfect window in which to raise their prices and increase their profits (clotheslines would save Sri Lanka from this unintended consequence).

Taking all this into account, according to Forbes, this has cost American consumers around USD 1.5 billion. One could argue that this increase in prices and resultant cost to consumers can be justified by the 1,800 jobs that were created. The reality is that each job is equivalent to USD 815,000 in increased consumer costs. This tariff policy effectively protects the local industry at the cost of their own consumers.

Why should Sri Lankans care about washing machine prices in the US?

While we can agree that this does appear to be an unfortunate example of unintended consequences, and that it is pretty clear that domestic consumers got a bad deal here, why should the average Sri Lankan care? After all, we have sunlight soap and clotheslines.

Sri Lankan consumers should care because the same unintended consequences that took place oceans away in the United States is happening here, in our little island nation. Tariffs have long been the favoured tool of successive governments. Tariffs sound really good on paper, and better if said paper is an election manifesto. ‘We will protect our domestic producers’ is a statement that tugs at the heartstrings of too many voters. The fine print ‘at the cost of domestic consumers’ is not something that is publicised, but it should be.

Tariffs have been imposed on goods ranging from household care, personal care and food. The price of items as diverse as school shoes and construction material are affected by this. The entire country complains about how the cost of living is too high, and unreasonably high tariffs are one of the drivers behind this. Unfortunately for us, the imposition of these tariffs create exactly the same series of unintended consequences that American consumers have to face. The price of the weekly shop an average Sri Lankan does whether it is from the delkanda pola, the closest supermarket or the handiye kade is affected by tariffs. A potato, even if it is locally produced is more expensive than it needs to be, because tariffs push the price of imported tomatoes up, allowing domestic producers to raise prices with the consumer losing out.

Tariffs on essential goods in Sri Lanka can range from 45% to 107.6%. There needs to be a serious re-evaluation of the role of tariffs in our economy – the rationale behind imposing them, the consequences of the tariff (which are well understood and cannot be discounted or ignored), and ideally a faster regime for phasing them out.