Sri Lanka’s oil palm growers say ready for more ‘import substitution’ if allowed

ECONOMYNEXT – Sri Lanka’s oil palm growers which have been facing opposition from activist who are energized by rainforests destruction in Malaysia and Indonesia have said they can produce more domestic edible oil if allowed.

Sri Lanka has been growing oil palm for over 50 years but opposition has come recently as rubber plantations were turned into oil palm in some destruction

Unlike export agriculture which has to be globally competitive, Sri Lanka’s import duties on edible oil – which are pushed by a powerful coconut landowner lobby with political connections – has made palm oil also artificially profitable in Sri Lanka.

Sri Lanka’s Palm Oil Industry Association (POIA) representing cultivators, refiners, processors, manufacturers, marketers and sellers of palm oil and their products said domestic production could help reduce the negative effect on multiple sectors due to a recent hike in imported oils.

Sri Lanka’s oil palm cultivators can provide tangible support to the government’s efforts to promote local agriculture and import substitution as a response to the impact of the COVID-19 pandemic on the national economy, the sector’s apex industry association has said.

“Numerous sectors such as confectionery manufacturers have already expressed concern on the increase in their costs of production as a result of the imposition of the special commodity levy on imported palm oil,” POIA President Rohan Fernando said in a statement.

“Confectionary manufacturers, for example, have said they would start making losses of Rs 100 million per month as a result of the higher cost of imported palm oil.”

In a country that does not have free trade, all products dependent on even a small amount of inputs become export uncompetitive. As a result natural export diversification stops.

Only specialist export firms which are export competitive from the beginning – usually with foreign expertise from countries with free trade – set up in industrial zones which are given duty free inputs are able to export.

Sri Lanka has some 9,000 hectares of oil palm, and permission had earlier been granted to increase it u to 20,000 hectares.

But restriction on cultivation of the crop had reduced domestic production to 23,000 tonnes of palm oil per year Sri Lanka is forced to 240,000 metric tonnes of oil, the association said.

Sri Lanka has restricted a number of imports as the central bank printed large volumes of rupees and created a ‘foreign exchange’ shortage.

Sri Lanka has suffered foreign exchange shortages, exchange controls and trade controls ever since the money printing central bank was set up and entire policy frameworks aimed at ‘saving foreign exchange’ had been devised instead of reforming the central bank.

As a result closed-economy or self-sufficiency mindset, which is now found only in North Korea (whre-denominates its money and takes zeros off and sometimes shoots officials involved in monetary policy) and economic nationalism and import substitution, persists in Sri Lanka.

France had guillotined officials involved in printing its ‘assignat’ currency after an initial ‘stimulus’ was followed by an economic collapse.

After the latest bout of money printing in Sri Lanka ministers have asked the public to grow vegetables and kollu (horsegram) as imports are controlled.

“While we understand and appreciate the factors that have necessitated the imposition of the levy, we feel this is an opportune moment for the government to support the local palm oil industry, especially since it can contribute significantly to the government’s drive to promote domestic production and self-sufficiency as a long term goal,” Fernando said.

“Palm oil cultivation is already helping save valuable foreign exchange by reducing imports at a time the country is trying to conserve foreign currency, and has the potential to help Sri Lanka conserve even more foreign exchange in the years ahead.”

Fernando said Sri Lanka’s oil palm sector could do more import substitution if they were allowed to grow more crop.

The sector now employs about 13,000 people in cultivation, refining and production, the POIA said.

Fernando said even if Sri Lanka grows 20,000 hectares of palm oil, the crop would account for only 2.5 percent of the total area under tea, rubber and coconut. (Colombo/May04/2020)