Media mention of Advocata regarding taxes on sanitary napkins

The Morning mentioned Advocata in a recent article on sanitary napkin taxation.

An excerpt from the article:

“The Advocata Institute, which originally published the article, is an independent policy think tank based in Colombo. We spoke with the institute’s Manager Research Communications Anuki Premachandra with regards to the data revealed by them.

A comprehensive understanding of the nature of our current situation can be obtained if you look at the following price comparisons: The average price of a packet of 10 pads in Sri Lanka is Rs. 130. Imported pads are priced between Rs. 200-260, and locally-produced pads are also around Rs. 100-130. A cost of a single pad in Sri Lanka is 24% more than in US and 26% more than the retail price of a sanitary napkin in India.

Protectionist taxes ensure security for local producers while also allowing a greater selection of options for the consumer; this has inadvertently resulted in local producers enjoying the comfort of a large profit margin per packet as prices in the market are high in itself, owing to taxes.”

Ailing rupee and Price Controls may lead to a shortage of Milk Powder

A cup of tea is every Sri Lankan’s morning mantra. This might not be the case much longer as Sri Lanka may face a shortage of milk powder as several leading milk powder importers are reported to have taken a collective decision to suspend imports. The recent depreciation of the rupee has caused a significant increase in import costs and importers say they are now unable to sell at the controlled price, hence the decision to suspend imports. The same impact will be felt in other industries subject to price controls. The pharmaceutical industry withdrew eleven drugs from the market citing similar reasons.  

The currency has depreciated by 10% in the past two months and over 20% in the past year, which will raise landed costs of  import products significantly. Importers of goods subject to price controls will continue to be squeezed as their price margins reduce and this will eventually lead to a halt in imports, like in the evident case of milk powder.

Imported milk powder is taxed at a total of 45% in Sri Lanka, with the objective of protecting local farmers and achieving self-sufficiency in milk products. Despite this self-sufficiency goal, local production meets below 40% of the total domestic milk requirement, considerably below 80% levels in the 1970s. Therefore, majority of the demand in milk products is met through imports, mostly from New Zealand and Australia. Over the last decade, in 7 out of 10 years, imports of milk powder has grown at a higher pace than the growth in local production.

Milk Powder Taxes.PNG

Additionally, in May 2018, changes to existing Price Controls on Milk Prices have raised the controlled price for milk powder to Rs. 345/400g pack and Rs. 860/1kg pack. This price control was enforced by the Consumer Affairs Authority, despite a rise in the global prices of milk. Global milk powder prices fell in 2015 and 2016 and climbed in 2017 and 2018 and now the cost of one metric ton of milk powder in the world market is US$ 3250-3350.

Furthermore, the depreciating rupee, now valued at Rs. 184 to a dollar has only continued to worsen the situation, making it more expensive to import milk powder.  “Importers of milk powder are squeezed between the tax (which raises costs), the controlled price which sets a ceiling at which the product retails, and now the depreciating rupee which further raises import costs” says Ravi Ratnasabapathy, Resident Fellow of the Advocata Institute.

The floor price encourages production which the market is sometimes unable to absorb, leading to gluts which cannot be converted to powder (the only long term storage form of milk) due to the controlled price.

A recent report by the Advocata Institute, Price Controls in Sri Lanka, emphasizes the contradictory trajectory of policies in the dairy industry. This tangle of taxes and controls comes at a cost to consumers. Our costs are increasingly becoming apparent by visible shortages of milk powder in the market.

Key Recommendations

  1. High import taxes lead to massive costs for milk powder importers. Changing this would not only mean cheaper milk for consumers, but also cheaper raw materials for downstream processors such as the biscuit or confectionery industry.

  2. The removal of the Maximum Retail Price would allow for a higher level of healthy competition among both importers and local dairy manufacturers, allowing market forces to decide prices.

  3. It is necessary that the government recognises that given the several supply constraints, the objective of self sufficiency is not realistically attainable in the Sri Lankan context. Thus, authorities should recognise the importance if imports in meeting demands of consumers and implement well-thought out measures to level the playing field between importers and domestic producers.

Foreign investors bail out from local stocks and bonds as debt servicing goes up

Originally appeared on News First

The COO of the Advocata Institute, Dhananath Fernando states that the foreign debt servicing schedule in Sri Lanka is mounting up for the next four years.

He explained that in 2019 Sri Lanka has to pay USD 4.2 billion, in 2020 USD 3.6 billion, in 2021 USD 3.3 billion and in 2022 USD  3.7 billion. So overall Sri Lanka will have to pay USD 15 billion over the next 4 years.

Even though the Sri Lankan rupee ended firmer yesterday (Dec 07) due to inward dollar remittances, foreign investors continued to bail out from local stocks and bonds.

Foreign investors sold a net Rs. 17 billion rupees worth of government securities in the week which ended on the 5th November, the highest weekly net outflows since the third week of February 2017. The stock market had net foreign outflows of Rs. 929.1 million this week.

While there are massive amounts to be paid as debt repayments, foreign investors continue to exit from stocks and bonds as well.

Media coverage on report launch: Price Controls in Sri Lanka

The Advocata Institute recently released their latest report, “Price Controls in Sri Lanka: Political Theatre”, which finds that consumer price controls lead to unintended outcomes including lower quality.

Advocata advocates abolishing price controls

"Politically-motivated price controls offer very little value to reduce costs and are detrimental to trade, industry and consumers asserts The Advocata Institute, launching its new report ‘Price Controls in Sri Lanka: Political Theater’ in Colombo on Tuesday." 

Read the full article

Price controls on foodstuffs —a political gimmick?

"The price controls slapped on a number of foodstuffs are of limited value despite their popular rhetoric, given the low adherence of traders towards the administered prices and lax enforcement actions by authorities, a recent survey conducted in Colombo and a few of the suburbs, revealed. " 

Read the full article

Do price controls reduce the cost of living?

“Last year, the Government imposed price controls on sixteen essential items, including dhal, sugar, potatoes, and imported onions. Has this reduced prices for consumers? Unfortunately not. A recent survey by Advocata found that the controlled prices are not being followed in most instances.”

Read the full article

Price control - a political stunt

‘A report on competition by the Advocata Institute says that fostering competition and improving productivity are the best forms of price control. The report titled ‘Price Control in Sri Lanka: political theatre’ notes that price controls are of limited value in reducing prices of consumer goods. Such measures rather than benefiting consumers lead only to welfare losses, deterioration in product quality, reduction in investment and in the long term, higher prices.’

Read the full article

Price control through taxation, self-defeating

‘The government’s price control practice  through taxation on essential items does not serve the purpose because it limits the value in reducing cost and damage markets by preventing the supply of products from rising to meet demand, a top market research company said.’

Read the full article

Panel Discussion on Price Controls - Why should they be abolished?

Ravi Ratnasabapathy, Resident Fellow Advocata Institute; Travis Gomes, Product Head Frontier Research and Dilini Jayasuriya, Managing Director Breakthrough Business Intelligence, discuss Advocata's latest report “Price Controls in Sri Lanka: Political Theatre”, that finds that consumer price controls lead to unintended outcomes including lower quality.


“Price Controls in Sri Lanka: Political Theatre”, a new report by the Advocata Institute finds that consumer price controls lead to unintended outcomes including lower quality.

To read more on Price Controls and download full report: www.research.advocata.org/pricecontrol

A video documentary: https://youtu.be/zG5hV94G7Qc


Price controls dominate political debate but may not help consumers

A new report by The Advocata Institute, titled “Price Controls in Sri Lanka: Political Theatre” finds that consumer price controls lead to unintended outcomes including lower quality. Politicians have imposed price controls on a variety of items in the belief that capping prices will lower costs but our survey shows that they are of limited value in controlling the cost of goods.

According to a limited survey carried out by Advocata, a comparison of controlled prices (over a ten month period) against retail prices as per the open market weekly average retail prices, showed that of 13 basic groceries only one (milk powder) was being consistently sold at the controlled price throughout the entire period. No one, not even the Consumer Affairs Authority (CAA), possesses a comprehensive list of items subject to price control.

Price Controls.PNG

Serious enforcement seems confined to items produced by multinationals or large corporates (milk powder, cement, cooking gas) which are administratively easier to police. In contrast, there only appears to be token enforcement in the unorganised sector. Loose enforcement prevents the most obvious symptoms of price controls from manifesting but at the expense of consumer choice and quality. Where price controls are enforced (eg: cement, milk powder) it is done so in consultation with the industry, leading to a stickiness in prices. Retail prices are slow to rise when world market prices rise but are equally slow to fall when world market prices decline.

The report also highlights how the Government’s approach to prices is schizophrenic; taxes are imposed that raise costs but the same products are then subject to price controls, supposedly to lower prices. The survey seems to indicate that price controls are of limited value in reducing costs and damage markets by preventing the supply of products rising to meet demand. They can cause significant welfare losses, a deterioration in product quality, a reduction in investment and, in the long run, higher prices.

A survey of traders indicate that 67% of retailers and 46% of wholesalers react to raids by the CAA by temporarily adjusting prices. They later revert to business as usual. Traders even claimed that paying fines for non-adherence was more profitable than retailing products at controlled prices. This was particularly true in the case of small tea and hopper sellers.

Tea and Hopper shops were subject to an arbitrary price control in 2015, but it is rarely enforced. At best, the control is useless and at worst, it works against these small entrepreneurs legitimate business activity and opens up potential for clandestine business. Advocata strongly believes that this control should be abolished.

Key recommendations of the report:

  • Little serious attempt appears to be made to impose the price controls on basic foodstuffs, particularly in the public markets. The controls encourage sub-optimal behaviour including the sourcing of poor quality or substandard items. Abolishing the controls will have minimal impact on prices while improving choice.  

  • Taxes, specifically the Special Commodity Levy and CESS play a significant role in raising consumer prices. Creating the fiscal space for simplification of the system, moving to uniform rates and the lowering taxes of taxes should lead to lower prices.

Price controls, tend to have unintended consequences and product quality can suffer
— Ravi Ratnasabapathy, Resident Fellow of Advocata and co-author of the “Price Controls in Sri Lanka” report

This report highlights that price controls are of limited value in reducing costs. They can cause significant welfare losses, a deterioration in product quality, a reduction in investment and, in the long run, higher prices. Advocata strongly believes that fostering competition and improving productivity are the best form of price control in Sri Lanka.


“Price Controls in Sri Lanka: Political Theatre”, a new report by the Advocata Institute finds that consumer price controls lead to unintended outcomes including lower quality.

To read more on Price Controls and download full report: www.research.advocata.org/pricecontrol

A video documentary: https://youtu.be/zG5hV94G7Qc


The Government should rethink price controls on bottled water

In an extraordinary gazette notification released earlier this week, the Sri Lanka Consumer Affairs Authority (CAA) imposed price controls on bottled water, to be enforced starting today (Oct 5).

Advocata notes that this decision will introduce distortion into the market possibly resulting in lower quality or shortages. As more than 120 companies battle for a foothold in Sri Lanka’s competitive bottled drinking water market, worries over unsafe and low quality products is concerning.

The maximum retail prices enforced through this gazette are as follows:

Control Price.PNG

In principle, the action of setting maximum prices on goods and services is known as a “Price Ceiling”. These are meant to “protect” consumers from being exploited.  Yet the reality may be different. A publication slated to release next week by Advocata, “Price Controls in Sri Lanka; Political Theatre” reveal that for the items surveyed price controls do not serve the intended purpose. Coupled with loose enforcement, consumer price controls in Sri Lanka have skewed the market towards a preference for lower quality products. The Price controls on water bottles, will likely to do the same.

According to a basic survey carried out by Advocata, market prices of bottled water for a 500 ml bottle, prior to the enforcement of the price control was as follows:

Market Price.PNG

The bottled water industry has 120+ entrants in the market. This means that until today, consumers had the choice of purchasing a 500ml water bottle at Rs. 45, Rs. 50 or at Rs. 80. Consumers were given the choice to buy bottled water as per their personal preferences and budgetary constraints. This is no longer the case.

In Sri Lanka, bottled water is regulated by the Ministry of Health through the Food (Bottled or Packaged Water) Regulations, 2005 framed under the Food Act No. 26 of 1980. There had not been major health and quality related concerns until 2016, where a CAA directive indicated that plastic mineral water bottling standards were enforced starting September 1, 2016 following the authority detecting several brands using low quality plastic bottles.

The likely result of the introduction of this new price control -- limiting the sale of a 500ml water bottle to Rs.35 -- is that producers have to now cut down on production costs, to reduce the final cost per bottle. Low production cost lead to the sourcing of low quality raw materials, in this case; water and plastic.  It also unclear whether the price controls also apply to glass bottles, which may be priced out of the market.

“In responding to price controls, the usual case is that producers would resort to producing low quality products in order to remain within the vicinity of the controlled price” says Ravi Ratnasabapathy, Resident Advocata Fellow and co-author of “Price Controls in Sri Lanka” report.

Advocata urges the government to engage relevant stakeholders and reverse the decision to unnecessarily intervene in an already competitive market.  

Let's Talk Development: FB live with Tim O'Brien

The Advocata Institute hosted Timothy O'Brien from the Center for International Development at Harvard University on the 25th of September for a Facebook Live. 

The focus areas of the discussion were on Sri Lanka's growth trajectory, trade and development. 

Tim O’Brien joined CID in 2015 and has worked on both Growth Lab and Building State Capability projects.He has led growth diagnostic research in Albania and Sri Lanka. Tim’s research interests center on the challenges of economic transformation and adapting to climate change in developing countries and vulnerable communities.

Media coverage for Prof. Razeen Sally lecture on Asian Capitalism and what it means for Sri Lanka

Advocata Institute in partnership with Echelon Magazine hosted Prof. Razeen Sally for a talk on the state of Asian Capitalism and what it means for Sri Lanka. Following is a collection of press coverage on the lecture where Prof. Razeeb Sally spoke of the the three facets of Asian capitalism: economic, political, and global.

Daily FT: SL is running out of input-led ‘perspiration’ growth in changing Asia: Razeen Sally

"Shortages of labour, land and an ageing population mean that Sri Lanka’s opportunities for rapid catch-up growth are diminishing and institutional transformation is needed for innovation and output-led growth." 

Read the full article

Sunday Times: Sri Lanka losing battle to increase productivity growth due to cronyism, lack of strong institutions

"Prof. Sally, who is also chairman of the Institute of Policy Studies, one of the leading economic-policy think tanks in the country, believes Sri Lanka’s crony patronage system between politicians and businessmen and the lack of strong institutions (legal, banking, public administration, etc) were an impediment to productivity growth."

Read the full article

Sunday Observer: Sri Lanka has to get reform basics right - Sally 

"Addressing a recent lecture titled Capitalism in Asia: What it means for Sri Lanka, Associate Professor at the Lee Kuan Yew School of Public Policy at the National University of Singapore, Razeen Sally points out that the country which is transitioning towards an upper middle-income country should not be overly dependent on the kind of ‘catch-up growth’ it had in the past, but try to improve its institutional framework and focus on innovation."

Read the full article

Daily Mirror: Sri Lanka sleepwalking into a Rajapaksa dynasty - Prof. Sally

"Delivering a public lecture last week on the topic ‘Capitalism in Asia and what it means for Sri Lanka’, organised by Advocata Institute – an open market advocacy – Prof. Sally said the present government is doing its best towards a Rajapaksa restoration."

Read the full article

Daily Mirror: March corporate earnings defy overall negative sentiment

"Last week, Professor Razeen Sally, a renowned scholar and the Chairman of Institute of Policy Studies (IPS), Colombo, slammed the crony private sector in Sri Lanka and elsewhere in Asia that undermines the enterprise renaissance and effective capitalism."

Read the full article

Prof. Robert Lawrence on Protectionism vs Free Trade: Video

Advocata Institute in partnership with Echelon Magazine, organized a public lecture by Ricardo Hausmann, from Harvard University's Centre for International Development. He spoke of Free Trade vs Protectionism 101 and its relation to Sri Lanka, and encouraged Sri Lanka to take on ambitious high skilled immigration reform to increase knowhow in the economy.

Prof. Razeen Sally on the state of Asian Capitalism and what it means for Sri Lanka: Video and Q&A

Prof. Razeen Sally, Associate Professor at the Lee Kuan Yew School of Public Policy at the National University of Singapore, spoke of the three facets of Asian capitalism and what it means for Sri Lanka at a public lecture organized by Advocata and the Echelon Magazine. 

Q&A Moderated by Eshini Ekanayake, an Economist at JB Securities focused on macroeconomic research and analysis on Sri Lanka.

A Public Lecture on Asian Capitalism and what it means for Sri Lanka

Advocata, along with Echelon Magazine with it's new event series Think! will host Prof Razeen Sally for a talk on the state of Asian Capitalism and what it means for Sri Lanka.

Prof Razeen Sally, Associate Professor at the Lee Kuan Yew School of Public Policy at the National University of Singapore. He is also Chairman of the Institute of Policy Studies, Sri Lanka. 

Eshini Ekanayake, Economist at JB Securities will moderate the Q&A.

Capitalism has had an astoundingly successful run since the 1950s, especially in East Asia. With China now at its centre, and, to a lesser extent, in South Asia, what will be Asian capitalism’s challenges in the next half-century? And what will it mean for Sri Lanka?

Prof. Sally will look at the three facets of Asian capitalism: economic, political, and global.

First, its economic face. So far Asia has had successful “catch-up” growth based on mobilising labour and capital, and imitating what the West has already done. Poor Asia (low-income and lower middle-income Asia) still has much room for catch-up growth. But Middle and Rich Asia (upper middle-income and upper-income Asia) have either exhausted catch-up growth or come close to exhausting it. Their challenge is to innovate, to move to more productivity-based growth. They need the “creative destruction” of “Schumpeterian” capitalism. So what are their innovation challenges?

Second, Asian capitalism’s political face. What are the varieties of institutions that underpin Asian capitalism? Are they equipped to move to Schumpeterian capitalism? What are the obstacles? Is Schumpeterian capitalism possible in a Chinese-style autocracy? Or does it need Western-style liberal democracy and “open societies”?

And third, Asian capitalism’s global face. Asian capitalism has been successful in a global and regional environment of stability and openness – the post-1945 Pax Americana. US leadership has provided geopolitical security and the maintenance of a liberal world economy. But these conditions seem to be changing, and faster than expected, with the US in seeming decline and retreat, and China ascendant and more assertive. So what are the relevant global and regional scenarios for Asian capitalism?

Find out more about the lecture and register to attend.

Media mention of Advocata regarding sanitary napkin taxes

Roar Media mentioned Advocata in a recent article on sanitary napkin taxation.

An excerpt from the article:

“Sanitary napkins and tampons in Sri Lanka are taxed at over 100% at their landed cost (the CIF value), the Advocata Institute, a public policy think tank, said. It doesn’t stop there—the price increases even more by the time the product reaches its retailers, as they add a markup to the already taxed item. “

The breakdown of taxes is as follows:

Sanitary Napkins Tax Breakdown