“The real issue for trade is the fuel shortage”/
The impact of the Sri Lankan crisis on the pulses sector

Sri Lanka was the centre of global attention last month, as protestors stormed the presidential palace in Colombo. 
But the strangely joyous images that emerged from the protest — of ordinary Sri Lankans playing the president’s piano and using his gym — belied the severity of the economic crisis now gripping the country.

Inflation is above 50% and the country is fast running out of essential supplies, including food, fuel and medicines. Families are stuck indoors, transport networks are frozen, and businesses are struggling to operate.

A long time coming

Sri Lanka has successfully transformed itself into a nearly middle-income country in recent decades. In 2001, its GDP per capita was slightly lower than the Republic of Congo; today, it's equivalent to Egypt or Tunisia. 

But beneath the surface, the country’s economic position has looked shaky for a while. Sri Lanka accumulated a lot of debt over the last decade, with an increasing share coming from high-interest, short-term commercial loans from China and Japan. The twin crises of Covid-19 and Russia’s invasion of Ukraine exposed those weaknesses, leaving the government unable to intervene as inflation soared.

The pandemic worsened the country’s fiscal position, leaving it with a total debt to GDP ratio of 99.5% by the end of 2021, well above the 64% threshold recommended by the World Bank for emerging market economies. 
The conflict between Ukraine and Russia and the subsequent spike in energy prices has caused severe fuel shortages in Sri Lanka, causing the government to implement fuel rationing. 

It doesn’t help that the country is dependent on imports. In 2021, Sri Lanka imported goods worth 25% of its GDP, which is slightly higher than peer countries in its income bracket. Food accounted for 13% of imports last year, including dietary staples like wheat, rice, and pulses; nearly one quarter of people’s calorie consumption relies on imports. 

That dependance, particularly for food, leaves the country highly exposed to price increases on global markets. The country’s foregin reserves have been depleted by 70% over the last decade, in part because it is so badly indebted. The hiatus of global tourism during the pandemic was particularly painful for Sri Lanka’s foreign currency earnings. 

The result is that the government and businesses are unable to pay for the imports they depend on. The solution? More debt. India has provided another line of credit: $1.2 billion, much of it spent on importing fuel.

Food folly

At the same time Sri Lanka’s fiscal approach has proven unsustainable, its agricultural policies have been similarly unhelpful. 
In an attempt to reduce the country’s import bill and encourage organic farming, the government hastily introduced a ban on synthetic fertilizer and pesticide imports in May 2021. 

There was enough stock in the country to get through the 2021 yala (off season) crop but not the 2022 maha (main) crop. Despite lifting the ban in November 2021, crop planting plummeted between October and December, with an expected 50% hit to normal crop yields. The lack of domestic food supply, combined with global price pressures, has fueled the inflation crisis. 

Impact on the pulses sector

Sri Lanka’s pulses producers are facing the same pressures as businesses in other sectors. Rajendren Gnanasambanthan, President of the Essential Foods Commodities Importers and Traders’ Association, is worried about the cost of inputs. “My main concern is that all the prices have gone up by more than 50% because of the dollar crisis, inflation, and currency exchange rates,” he said.

For Mahmud Abdel Cader, CEO of Pulses Splitting and Processing Industry, the real issue is fuel. “For the time being, food shortages should not be a problem, at least for the next 2-3 months. The real issue now, according to me, is the severe shortage of fuel and gas which makes trade and imports very costly, and makes it difficult for people to access simple products that are still present in the market.”

Cader noted that the rising cost of pulses — according to Central Bank data, the wholesale price of beans increased from 240 rupees/kg in March, to 450 rupees/kg in early August — means that consumers are looking for cheaper alternatives and even reducing food consumption altogether. 

“Low-income people can not afford to buy high-value pulses, so they started to switch to vegetables,” he said. “In general, people started to change their food habits, some of them progressively switching to a one-meal-a-day diet, to face the reduced capability to buy essential food.”

There’s also the operational impact on business operations. Businesses across the country are facing rolling power outages, sometimes for up to 3 hours. Cader’s firm has reorganized its production schedules so staff can keep working despite the energy instability. 

Logistics and sales fulfilment represent another challenge. The increased cost of fuel (as well as shortages) makes transporting goods across the country harder and more expensive. At the same time, “A lot of customers who need products are unable to come to Colombo and buy the goods themselves,” Cader said. Even keeping the generator running can be difficult.

Despite these problems, however, both Gnanasambanthan and Cader are optimistic about the future of Sri Lanka’s pulses sector. In the long-term, both agree that the country will have to increase its food self-sufficiency. That will mean opportunities — and hopefully support — to grow more pulses.

“What we are seeing is that domestic productions are adjusting towards higher yields and the restoration of crops that we only used to import. Therefore, the focus now is on developing and starting to produce two types of pulses — green mung beans, and black matpe — and see what levels of self-sufficiency they can reach,” said Cader.

Gnanasambanthan agrees that pulses are presenting farmers with the opportunity to produce higher yield crops. “For example, green mung beans and cowpeas are doing very well in terms of yields. Farmers are increasing their production for exporting purposes, since the price for these kinds of pulses is very good in the market now,” he said.

Although the lack of fertilizer meant this year’s yala production couldn’t hit the targets set by the Department of Agriculture, production levels of both black matpe and green mung beans were higher than expected: final volumes in June 2022 reached around 2000MT and 5000MT respectively while cowpea yields saw production levels of around 4000MT for the yala harvest, according to data from the Department of Agriculture.

Mixed outlook

Sri Lankans gleefully ousted the former president from his palace, with the hope of change and some semblance of normality. A new president has been installed but is already facing criticism about a lack of legitimacy. 

That is a concern. The economic reforms any new government will likely need to pursue to rebalance the economy could be painful and unpopular in the short term. Cader thinks that difficulty could last as long as two years. “My prediction is that it will take us approximately 2 to 3 years to get back to a normal situation, years during which we will have to suffer mostly the severe lack of fuel and gas and everything that rotates around these goods.”

But he has faith in the future and the optimism of his countrymen. “Things will change in our daily life, and we will have to endure and make sacrifices to come out of the crisis, but the history of Sri Lanka is made of resilience and resistance, and I know we will get through this, once again.”