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Global Food Crisis and the Sri Lankan Economy: An Analysis of Price
Transmission and Food Consumption Patterns During 2005-2009
Conference Paper · March 2010
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Effects and Implications of the Global Food and Financial Crises and Policy Responses:
A Study on the Agricultural Sector in Sri Lanka
Jeevika Weerahewa and Sarath S. Kodithuwakku
Department of Agricultural Economics and Business Management

University of Peradeniya
ABSTRACT
The Sri Lankan economy has been closely linked to the global economy mainly through trade,
foreign remittances, foreign direct investment and tourism. This situation should theoretically
bring about adverse impacts on the domestic economy when the global economy is in crisis. The
objective of this paper is to assess the effects of the Global Food and Financial Crisis on the
economy in Sri Lanka and to ascertain the extent to which the policy response of the government
helped in minimizing the adverse impacts with special reference to the agricultural sector. The
paper first evaluates the trends in macro-economic indicators, and then calculates the degree of
price transmission from the world market to the domestic market, and next documents the policy
measures implemented by the Sri Lankan government during the periods of pre-crises, food
crisis and the financial crisis. The findings indicate that trade has acted as the primary channel
through which global shocks have passed on to the Sri Lankan economy. The impact of the
terms of trade shock on the national income in Sri Lanka was quite significant during the food
crisis period and a recovery was evident during the times of the financial crisis period. Though
the fuel prices have been transmitted efficiently into the domestic economy, especially during the
food crisis period, the transmission of world prices into the domestic economy has been less than
perfect for many agricultural sub-sectors. Although price hikes in certain agricultural sub-
sectors such as milk and wheat can be attributed to the world price hikes, the price changes of
rice (i.e. the staple food of the country) in the local market found to be primarily driven by the
changes in internal market conditions. A close examination of the local policy environment
reveals that a diverse array of trade policies and price policies has been implemented on various
agricultural sub-sectors in the country during the periods under consideration. All in all, the
policy response of the Sri Lankan government towards the agricultural sector seems liberal
during the food crisis period and more protectionists during the financial crisis period.
Furthermore, an increase in investments in agricultural research is also evident over the time.
The current policy focus of the Sri Lankan government is to develop its agricultural economy
through an inward looking strategy, yet the global crisis situation can be considered as only one
of the factors, among many, that made the policy makers to adopt such strategies.
1
1. INTRODUCTION
A drastic decline in economic activity has been observed in a number of developed countries
over the past few years. It is inevitable that such global shocks pass on to small trade dependent
economies to varying degrees. This is though changes in (i) export and import prices of
merchandises, (ii) capital inflows such as foreign direct investment (FDI) and equity, migrant
worker remittances, development aid and borrowings from global capital markets, and (iii)
foreign demand for merchandises as well as services such as information technology and
tourism. They can have quite different implications on the status of food insecurity of different
household groups depending upon (a) their consumption patterns and resource endowment and
(b) the government's policy responses to the global changes. The economy of Sri Lanka has
been highly trade dependent with a trade dependency ratio of approximately 60%. The roles of
foreign remittances, tourism and FDI in the Sri Lankan economy are quite significant. In 2008,
garments, remittances, tea, transport services, rubber based products and tourism are the major
foreign exchange earners and they contributed 26.4%, 22.2%, 9.7%, 7.6%, 4.1% and 2.6%
respectively (Central Bank of Sri Lanka, 2008). Consequently, one could expect significant
adverse effects of the recent global food and financial crisis on the economy of Sri Lanka.
There are a growing number of studies aimed at assessing the impacts of the global food crisis on
the Sri Lankan economy. Samaratunga (2008) contends that the crisis in the Sri Lankan food
market, particularly for rice, is not merely due to global rice crisis. The same author further
argues that the key reason behind the crisis in Sri Lankan food market is due to inadequate
investment in agricultural research. Weerasooriya et al. (2010) have pointed out that the world
market prices have not been fully transmitted to the domestic economy, partly due to agricultural
and food policy response of the government. They further argue that the country’s dependency
on imported food is small and large masses of rural poor rely heavily on locally grown food for
consumption. According to Gunatilake (2009) the impacts of the financial crisis on employment
in different sectors are quite significant. Labor force survey data for the first quarter of 2009
show that (compared with the first quarter of 2008), the economy has lost about 30,000 jobs in
manufacturing and trade and 64,000 jobs in construction sectors. Employment in agriculture has
increased by 200,000. The slump in export market has given rise to closure and layoffs in the
export related sectors domestic economy.
The purpose of this study is to ascertain the impacts, implications and policy response of the Sri
Lankan government for the global food crisis and the Global Financial Crisis (GFC) with special
emphasis on the agricultural sector of Sri Lanka.
The paper is organized as follows. The next section attempts to provide background information
on the Sri Lankan economy though documenting its linkages with the global economy and
government policy framework. This is followed by a presentation of a conceptual and an
analytical model for analyzing the impacts of global food and financial crisis on a small trade
dependent economy. Subsequently the data and data sources required for analysis is presented.
The paper finally presents trends in macroeconomic indicators, policy measures taken, and the
degree of transmission of world prices into the domestic economy. The paper ends with
conclusions and suggestions for further research.
2
2. THE CONTEXTUAL BACKGROUND
a. Linkages of Sri Lankan Economy with the Global Economy
Trade: Figure 1 shows major trading partners of Sri Lanka and Figure 2 shows the key products
imported and exported by Sri Lanka. The economy depends on the world market, particularly on
India, Singapore, Iran, China and Hong-Kong as the top five countries for its imports
(comprising about 80% of imports in value terms). Crude oil and petroleum products (i.e. the
major import category) constitute 24% of total imports and Iran is the major supplier. This is
followed by food (17%) and textile (12%) as second and third most prominent categories
(Central Bank of Sri Lanka, 2008). Wheat, dairy and sugar are the main imported food items to
the country. Sri Lanka imports a larger share of its food from India.
Major Export Destinations of Sri Lanka Major Import Sources of Sri Lanka
4% 3%
4% India
3% 3%
United States of America 4%
4% Sigapore
5% United Kingdom
4% 37% Iran
Italy
34% China
7% Belgium-Luxemberge
7% Hong Kong
India
United Arab Emirates
Germany
8% Japan
United Arab Emirates
Canada
Russia 11%
Malaysia
8% France
Belgium-Luxemberge
Japan
14%
12%
8%
20%
Figure 1: Major Trading partners of Sri Lanka, 2008

Source: Central Bank of Sri Lanka
3
Figure 2: Exports and Imports of Sri Lanka by product category, 2008
The US, UK, Italy, Belgium and India are the top five countries that Sri Lanka exports its
products, which comprises about 90% of its exports in value terms. The top five export
categories, in the order of importance (in value terms), are garments (43%), Tea (16%), rubber
(6%), “Food, beverages & tobacco” (6%) and “diamond & jewellery” (5%) according to the
Central Bank of Sri Lanka (2008). The country relies heavily on the US, UK and the rest of the
EU for exporting its garment items.
Remittances: Foreign remittances rank as the highest foreign exchange earner in 2008 bringing
Rs. 316,118 million into the country which accounts for 36% of the total foreign exchange
earnings. The number of Sri Lankan employees working abroad is 1.7 million with an annual
outflow of approximately 200,000. The major market is the Middle East accounting for 93% of
employees amounting to 60% of remittances. Among the labor force 70% is unskilled and 66%
are female domestic workers of which 88% of female workers are housemaids (Sri Lanka Bureau
of Foreign Employment, 2010).
4
Tourism: Asia (39.5%), Western Europe (38.1%) and Eastern Europe (6.7%) are the three most
important sources of tourists to Sri Lanka. Among the countries, India is the leading producer of
tourists to Sri Lanka accounting for 19.4% of the total traffic (Sri Lanka Tourism Development
Authority, 2010).
Foreign capital and FDI: FDIs constitute 7.73% of the GDP and the investments are made in
Services sectors such as telecommunication sector, textiles, wearing apparel and leather industry.
b. Trade Policy Framework of the Sri Lankan Government
Sri Lanka has been relying more on outward-looking strategies for its development since
economic liberalization in 1977. One of the major initiatives taken by the government during the
initial phase of economic liberalization is characterized by promotion of export-oriented
industrial manufacturing which subsequently absorbed labor from the rural agricultural sector.
A close examination of policy documents reveals that the agricultural sector of the country had
not begun to open up until the mid 1990s despite the fact that liberalization of the economy
commenced in late 1970s. The first notable attempts to liberalize the agricultural sector were the
removal of export taxes on plantation crops, import licenses on rice, chillie, onion and potato and
allowing of private traders to import rice in mid 1990s. At present, the restrictions on imports of
most agricultural items are limited to import tariffs, a few other border charges, and Sanitary and
Phyto-Sanitary regulations. Sri Lanka had bound import tariffs at a rate of 50% for most of the
agricultural items, in compliance with commitments to the World Trade Organization. SAPTA,
Indo-Lanka Free Trade Agreement, and Sri Lanka-Pakistan Free Trade Agreement also provide
opportunities to enhance agricultural trade within the South Asian region.
Though a gradual reduction in tariff levels can be observed over the years, during the past
decade, the restrictions imposed on agricultural trade have seen significant fluctuations. The
tariff levels announced at the beginning of the year have been frequently modified by various
exemptions, surcharges, and levies, making the trade policy environment uncertain. More
recently, a number of cesses (trade taxes) have been introduced for agricultural items, so as to
increase investments in the respective agricultural sectors.
3. APPROACH
This study first examined trends in economic variables during the two crisis periods (Food
Crisis: July 2007-September 2008 and GFC: October 2008-December 2009) as opposed to those
of the pre-crisis period, i.e., July 2005-June 2007 to identify the changes occurred during the two
crisis periods. Further, an attempt was made to graphically depict trends during two periods
within the GFC, i.e., pre-GFC (October 2008-March 2009) and post-GFC (April 2009-December
2009), whenever data/information is available. The latter was done to accommodate the policy
response of the government for the GFC which is embedded during post-GFC period. Figure 3
shows the periods considered and the key exogenous events occurred at different times.
5
Global Crises, Policy Response, and Exogenous Events
Essential Goods Interest Rate

brought under a
single levy
Exchange rate:
Rupee allowed to
devaluate War ends
Easing of
Monetary Policy
PRE CRISIS FOOD CRISIS PRE GFC Post GFC

July 2005 to August 2007 to October 2008 to April 2009 to
July2007 September 2008 March 2009 December 2009
Figure 3: Distinction among different periods
It should be noted that the policy response of the Sri Lankan government during the crisis
periods is not only due to external shocks, but also due to various internal factors such as the end
of war in May 2008, elections held (5th presidential election in November 2005; local
government elections in March and May 2006 and May 2008; provincial council elections in
May 2008, August 2008, February 2009, April 2009, August 2009 and October 2009), granting
of the IMF facility (July 2009), implementation of the “Mahinda Chinthanaya” etc.
Second, the study analyzed the percentage changes in macroeconomic indicators during the food
crisis period and GFC from those prevailed during the pre-crisis period. Two scenarios based on
the counterfactual price levels that were assumed to be prevailed during the crisis period.
Scenario A: Counterfactual price levels were assumed to be same as pre-crisis average

prices.
Scenario B: Counterfactual price levels would follow the natural trend as in the pre-crisis
average prices.
The differences between the two scenarios are shown in Figure 4. Suppose that the actual prices
increase at a slower rate during the pre-crisis period, increase at a rapid rate during the food crisis
period, and decrease during the GFC period. The changes in such are depicted by the solid line
in Figure 4. The average prices prevail during the three periods, pre-crisis, food crisis and GFC
are labeled as P1, P2 and P3 respectively. Under scenario A, the percentage change in prices
during the food crisis and GFC periods are given by (P2-P1)*100/P1 and (P3-P1)*100/P1
6
respectively. Under scenario B, a natural growth in prices as in the pre-crisis period is assumed
(depicted by the dashed line in Figure 4). The average prices that would prevail during the food
crisis and GFC periods if crises have not occurred are marked as P4 and P5 respectively.
Accordingly, under scenario B, the percentage change in prices during the food crisis and GFC
periods are given by (P2-P4)*100/P4 and (P3-P5)*100/P5 respectively.
Price
P5 Pre-crisis trend
P2
P3
P4
P1
Time
Pre-crisis Food crisis GFC
Figure 4: Average prices during pre-crisis, food crisis and GFC periods under alternative scenarios
The following steps were undertaken to construct the percentage changes as per above
description: a) the average prices prevailed during the 3 periods were calculated, b) the growth
rates during the pre-crisis were estimated using pre-crisis actual world market prices, in log
linear functional forms using Ordinary Least Squares, c) the levels that would have prevailed
during crisis time were computed using the growth rates estimated above and the average levels
of such predictions were obtained.
Third, the degree of transmission of world prices into the domestic economy was calculated (see
Dawe (2008) for a description of the method). The following method was used to obtain the
price pass-through coefficients; (a) world market prices were multiplied by exchange rates and
world market prices were presented in domestic currency, (b) the average values of the world
market price and domestic prices (at retail, wholesale and farm-gate levels where available) were
calculated for the three periods; pre-crisis, food crisis and GFC, (c) The average changes in the
prices during the two crisis periods were calculated and the changes in the world market were
compared with the changes in the domestic market to assess the degree of price transmission or
price pass through.
Forth, the policy response of the government with special reference to food and agricultural
markets was documented so as to ascertain the extent to which government influence the price
pass through.
7
4. DESCRIPTION OF DATA AND DATA SOURCES
Macroeconomic data published in various publications of the Central Bank of Sri Lanka, such as
Annual Reports, Highlights of the year, Monthly Bulletins, are the key sources of data. In
addition, Annual Reports of the Sri Lanka Tourist Board, Foreign Services Bureau and Board of
Investment of Sri Lanka were used. The world market prices were obtained from the Food and
Agriculture Organization (FAO).
5. EXTERNAL SHOCKS
Unit Values of Trade and TOT: It has been argued by many experts that trade is the primary
channel through which the global crisis has been transmitted to Sri Lanka. The trade shocks can
be depicted using the unit values of major exports and imports and terms of trade (Table 1). It is
clear that a significant deterioration of terms of trade (TT) was recorded during the food crisis
period (Figure 5). Appendix figures 1-13 show the pattern of unit values of exports and imports
from July 2005 to November 2009.
8
Table 1: Average Unit Export Values, Unit Import Values and Terms of Trade during the four
periods
Category Variable Pre-crisis Food Crisis Pre-GFC Post-

GFC
Exports All exports 185.3 212.4 188.8 203.90
Garments and Textile 171.1 184.7 178.9 192.40
Tea 177.7 250.5 243.4 269.30
Rubber 260.5 359.7 263.0 242.03
Coconut 173.4 215.6 203.1 235.06
Other Agriculture 162.6 192.9 164.5 170.20
Imports All imports 188.6 244.3 202.3 226.80
Textile 145.6 159.7 157.8 158.63
Petroleum 472.0 662.9 718.7 879.46
Wheat 149.7 239.5 362.9 265.83
Food and drink 186.7 223.8 173.9 251.93
Fertilizer 265.9 383.5 653.3 452.60
Crude oil 492.9 611.9 753.6 627.66
Terms of Trade 98.2 87.5 94.4 96.80
Terms of Trade (TOT)
120
1 2 3 4
110
100
90
80
70
60
Jul-05 Nov- Mar- Jul-06 Nov- Mar- Jul-07 Nov- Mar- Jul-08 Nov- Mar- Jul-09 Nov-
05 06 06 07 07 08 08 09 09
1 Pre Crisis (98.2) 2 Food Crisis (87.5)
3 Pre Global Financial Crisis (94.4) 4 Post Global Financial Crisis (96.8)
2/23/2010 38
Figure 5: Changes in Terms of Trade
Foreign Remittances: Contrary to the expectation, the pattern of foreign remittances, the other
key channel through which global shocks should be transmitted, have not found to be affected
9
during crisis years. It is due to the fact that a significant portion of the remittances come from
female workers who are mainly employed in service sectors in the Middle-Eastern countries,
whose job have not been severely affected by the crisis.
Tourism: A drop in tourist receipts was recorded during the crisis years. However one can argue
that this drop may be due to the civil war that prevailed in the country coupled with travel
advisories (Table 2).
Table 2: Tourist arrivals

Item 2005 2006 2007 2008 2009
Total 549,308 559,603 494,008 438,475 447,890
Western 227,191 228,445 194,448 167,187 170,123
Europe
Eastern 9,290 14,221 25,573 29,440 26,310
Europe
North 46,457 35,323 28,355 24,311 24,948
America
Asia 223,351 242,132 202,480 173,042 174,534
Australasia 29,738 25,127 22,924 21,839 26,068
Other 13,281 14,355 20,228 22,656 25,907
Regions
Foreign capital and foreign direct investment: A sudden outflow of foreign capital has been
recorded in September 2008, which has led to a significant reduction of country’s foreign
exchange reserves. However, this trend has reversed with the ending of the armed conflict in
May 2009 as foreign capital has flowed into government securities.
6. IMPACTS
a. Gross National Income
Real National Income at constant prices, i.e., National Income adjusted for TOT effects is good
indicator to show the direct impact of the global crisis on an economy. Table 3 shows the
changes in Real National Income during 2005-2009 in Sri Lanka. It is visible that the real
income effect overall (as shown in adjustment) is relatively minor and TOT improves in 2009.
10
Table 3: Real National Income (Rs. Million)
Item 2005 2006 2007 2008 (a) 2009 (b)

GNP at constant (2002) prices 1,917,884 2,061,807 2,208,291 2,309,172 2,420,972
TOT effect due to export of Tea 1,862 814 3,289 3,515 9,357
TOT effect due to export of 13 448 483 483 284
Rubber
TOT effect due to export of -2,724 -3,676 -4,301 -4,108 -1,936
Three major coconut products
TOT effect due to export of 6,131 1,306 -5,843 -27,662 2,610
Other products
Total TOT effect 5,282 -1,108 -6,372 -27,772 10,315
Real National Income at 1,923,166 2,060,699 2,201,919 2,281,400 2,431,287
Constant (2002) prices
(a) Revised
(b) Provisional
Source: Department of Census and Statistics and Central Bank of Sri Lanka
A closer examination of unit values of exports and imports together with TOT reveal that the
drop in TOT during the food crisis period is primarily due to the increase in unit values of
imports. The recovery of the TOT during GFC is primarily due to the relatively higher rate of
increase in unit export values compared to unit import values (Figure 5 and Appendix Table 1).
b. Price indices
The Colombo Consumers Price Index (CCPI) show that the price levels have first risen
significantly during the food crisis period, then have come to a plateau during the pre-GFC
period and finally have been slowly rising during the post-GFC period (Figure 6).
11
CCPI
300
1 2 3 4
250
CCPI (Base: 2002=100)
200
150
100
50
0
Jul-05 Nov-05 Mar-06 Jul-06 Nov-06 Mar-07 Jul-07 Nov-07 Mar-08 Jul-08 Nov-08 Mar-09 Jul-09 Nov-09
Total CCPI Food and Non Transport

alchoholic beverages
1 Pre Crisis 2 Food Crisis
3 Pre Global Financial Crisis 4 Post Global Financial Crisis
Figure 5: Movement of CCPI
The Table 4 shows the world and domestic food prices have changed more or less equally during
the food crisis period (compared with that of pre crisis period). However, if the natural price
growth during the pre crisis period is assumed to be continued the projected percentage change
of the food prices at the domestic market (i.e. 6%) would be much below the percentage change
of food prices in the world market (i.e. 20%). This indicates that the contribution of the food
crises to the growth of food prices at the domestic market as low as 6 percent. This is because of
the fact that the rate of growth of the food prices in the domestic market has been higher than
that of the world market prices during pre crisis period. When it comes to the percentage change
of food prices during the GFC period (compared with pre crisis period), it is quite evident from
the findings presented in the table 4 that the domestic food prices have changed at a higher
percentage rate (i.e. 48.92%) than that of the world market (22.23%). However under the
assumption of the continuation of the natural price trends observed in the pre-crisis period, it is
quite evident that the percentage change of prices in the world market (-7%) closely tally with
that of the domestic market prices (-6%). This indicates that the GFC has brought down the rate
of growth of food prices in both the world and domestic markets, although the domestic food
prices have drastically increased (i.e. by 48.92%) compared to that of pre-.crisis period (i.e.
22.23%).
12
Table 4: Comparison of the rates of changes in international and domestic food price indices
under alternative scenarios.
Period under Price Indices Change of rate of Change of rate of prices

Consideration prices under
under Scenario B
Scenario A1 (assuming natural
growth rate) 2
Food crisis International 40.31% 20%
compared with prices
pre-crisis Domestic prices 37.08% 6%
GFC compared International 22.23% -7%

with pre-crisis prices
Domestic prices 48.92% -6%
c. Prices in agricultural sub-sectors
A comparison of prices of food in the world market with that of domestic prices, at a
disaggregated level, reveals that the association between world and domestic prices varies across
commodity groups. A very close association is visible for fresh fish. The domestic prices of rice,
potato, and shrimp do not show a close association with world market prices, yet they move
together during the GFC years. It is noteworthy that domestic rice prices have not moved during
food crisis period with world market prices. The smaller hike in domestic rice prices during the
food crisis period cannot be attributed to the world market price hike as there were internal
market conditions that led to a domestic rice price hike. A dis-association between the world
market prices and domestic prices is visible for chicken, which is hardly traded internationally
(Appendix Figures 14-19).
A significant rise in rice prices in the international market and retail, wholesale and farm gate
levels of the domestic economy was observed both in the food crisis period and the GFC period
compared to the pre-crisis period. The rate of increase in prices during the crisis years in the
international market and domestic markets were very much similar with pass-through
coefficients ranging from 0.91 to 1.15. The equivalent world market prices, in nominal terms,
lied above the domestic prices (Table 5).
1
Scenario A: Counterfactual price levels were assumed to be same as pre-crisis average prices.
2
Scenario B: Counterfactual price levels would follow the natural trend as in the pre-crisis average prices
13
Table 5: World market prices, domestic prices and price pass through coefficients of Rice,
Potato and Fuel during the pre crisis, food crisis and GFC periods
Rice Rs/kg Potato Rs/kg Fuel

World Wholesa FGP Wor Wholes Price
Price le Retail ld ale Farm Worl Inde
pric price gate d x
e price price SL
Average Pre-Crisis 31.77 25.44 26.68 15.12 62.39 54.19 62.58 4,819.90
prices 24.73
Food Crisis 63.76 49.49 51.02 29.23 65.62 60.54 100.52 7,352.00
27.67
GFC 67.13 55.09 54.76 34.47 75.28 62.96 63.05 6,615.68
33.26
Percentage Food 100.72 94.55 91.21 93.30 5.19 11.72 60.63 2.53
change from 11.91
pre crisis GFC 111.32 116.54 105.20 127.91 20.66 16.18 0.76 37.26
34.51
Ratio of Pre Crisis 0.80 0.84 0.48 2.52 2.19
domestic to Food Crisis 0.78 0.80 0.46 2.37 2.19
world
GFC 0.82 0.82 0.51 2.26 1.89
Ratio of Pre crisis and 0.93 0.44
change in Food crisis 0.94 0.91 0.98 0.87
domestic vs. Pre crisis and 1.05 0.95 1.15 0.60 0.47 48.97
world GFC
The increase in potato prices, compared to that of the cereal prices, during the crises periods is
small. The world market prices increased by 12% and 35% during food crisis years and GFC
period respectively and the increase in domestic prices were smaller than those at the world
market with pass-through coefficients ranging from 0.44 to 0.60 (Table 5).
The increase in shrimp prices and fish prices in the local market is quite higher than that of world
market prices, which indicates that the changes in the domestic market conditions influence
domestic price levels lot more than the changes in the world market conditions.
d. Fuel prices
Fuel prices in the world market had shown a sharp rise during the food crisis period compared to
that of pre-crisis period and a decline could be observed during the GFC period. The average
prices were 62.5, 100.52 and 63.05 USD per barrel during pre-crisis, food crisis and GFC periods
respectively. This suggests that prices have increased by 60.63% from pre-crisis to food crisis
periods and slightly increased by 0.76% from pre-crisis to GFC period. The corresponding
prices in the domestic economy, as reflected by the wholesale price index were 4819.90, 7352.00
and 6615.68 during pre-crisis, food crisis and GFC periods respectively (Appendix Figure 20).
This suggests that prices have increased by 52.53% from pre-crisis to food crisis and 37.26%
from pre-crisis to GFC period. These values indicate that the price pass through was 0.87 during
food crisis period (Table 5).
14
7. GOVERNMENT RESPONSE
a. External sector policy framework

Even though Sri Lanka has been considered as the most liberal country in South Asia, at present,
it the most protectionist country as far as the protection provided by para tariffs are considered
(Pursell, 2010). Table 6 shows the average taxes across different sectors in 2004 and 2009.
Pursell (2010) further states that protectionist policies were supported by the government elected
in April 2004 and began to implement a new import tax called a “cess” in November 2004.
Since then the scope and level of cess and other para tariffs have been steadily expanded.
Although the average custom duty was 12.4%, the total protective rate was 27.9% in 2009.
Three import taxes (tariff surcharge, ports and airport levy and cess) have been treated as para-
tariffs. From 2008 the VAT was also used as a protective para-tariff by removing it from a
number of domestically produced products while applying it to imports of the same products. Of
the three para-tariffs the most protective by far is the cess.
Box 1: External sector policy framework in Sri Lanka

2007: The five-band tariff structure of 0, 2.5, 6, 15 and 28 per cent continued to prevail in 2007. However, duty
rates on consumer goods were subject to frequent changes. Surcharge on customs duty (10 per cent of custom duty),
Value Added Tax (VAT), Port and Airport Development Levy (PAL), Social Responsibility Levy (SRL), Excise
duty (on alcohol, tobacco products and vehicles) and a cess on non-essential consumer items were prevailed. Single
specific custom duty rates were introduced on ten selected food items, instead of surcharge, VAT, SRL, cess and
other charges.
2008: Wider fluctuations in prices of essential consumer items in the world market necessitated temporary measures
to reduce their impact on domestic prices. These included duty waivers on a few essential goods to contain
inflationary pressures. In order to curtail pressures on the trade deficit to expand further, measures were taken to
adjust tariffs and impose margin deposit requirements on certain imports that were deemed to be non-essential.
Such measures were removed or reversed in order to recoup government’s tax revenue.
The five band tariff structure continued. The surcharge on custom duty was increased to 15 percent from 10 percent.
In order to contain the rise in the prices of essential food items, the custom duty, VAT, PAL, SRL, and other charges
applicable at the customs point for eleven selected essential food items, were replaced by a lower, single Special
Commodity Levy.
2009: The key policies implemented include introduction of a Simplified Value Added Tax Scheme (SVAT),
reduction of VAT from 15 per cent to 12 per cent and the introduction of Export Development Reward Scheme
(EDRS) with the objective of securing existing markets, penetrating new markets, and establishing and promoting
forward and backward linkages during times of crisis.
Though the five bad tariff structure introduced in 2004 continued till 2009, several other trade related taxes were
imposed during 2009 for revenue generation purposes and to protect domestic industries, in addition to custom duty.
They include Cess, Special Commodity Levy (SCL), Nation Building Tax (NBT) and VAT. The average import
duty collection rate was 7.8 per cent in 2009. With the escalation of prices of certain essential commodities, the
government revised taxes on the import of some items. Accordingly, customs duty, PAL, NTB, SRL, VAT and
surcharges were replaced by a lower SCL.
Source: Central Bank of Sri Lanka, 2007, 2008 and 2009.
15
Table 6: Unweighted averages of tariffs and para-tariffs in Sri Lanka
January 2004 2009
Custom Para tariffs Total Custom Para tariffs Total
duties protective duties protective
rate rate
All tariff 11.3 2.1 13.4 12.4 15.5 27.9
lines
Non- 8.8 1.9 10.7 10.3 13.7 24.0
agriculture
Agricultural 24.6 3.5 28.1 24.6 25.0 49.6
Source: Purcell, 2010
b. Policies on agricultural sub-sectors
Tables 7a and 7b show the trade policies implemented during the crisis years for rice, potato,
onion, chillie, coconut and related products, milk and milk products, sugar and other agricultural
products. A close examination of the policies implemented reveal that they were implemented to
enhance imports until the end of 2008 and they became quite protectionist during the calendar
2009 (Table 8). During the month of December, the policies became more liberal so as to lower
food prices during the festive season. It seems that in many occasions, especially for rice and
coconut, higher world prices were coincided with lower import taxes (Appendix Figures 21-23).
Table 8: Average Import Duty Collection Rate (a)
Item 2005 2006 2007 2008 (b) 2009 (c)

Average Import Duty Collection Rate 4.6 4.3 4.1 4.6 7.8
Consumer Goods 10.4 11.2 13.5 12.6 19.4
Food and Beverages 9.6 10.7 13.5 14.8 26.8
Rice 10.6 23.4 3.1 3.1 5.4
Flour 3.8 33.7 31.9 22.6 22.6
Sugar 1.5 1.9 23.9 32.8 26.5
Wheat and Meslin 1.1 5.6 6.3 6.7 32.2
Milk and Milk Products 10.2 9.6 7.7 2.0 29.2
Dried Fish 5.9 5.0 2.9 9.4 10.9
Other Fish Products 9.8 7.8 4.9 8.7 18.3
Other 22.0 24.2 20.8 24.2 27.2
(a) Average import duty collection (including Special Commodity Levy whatever applicable) as a percentage
of total imports (c.i.f.) value.
(b) Revised
(c) Provisional
16
Table 7a: Trade policy measures on rice, potato, onion and chillie during 2005-2009
Period Month Rice Potato Onion Chillie

Pre-Crisis 31 January 2007 Full duty waiver Full duty waiver applicable on
applicable on importation of chillies was
importation of B’ extended until 15 February 2007.
Onions and red onions
was extended until 15
February 2007.
10 March 2007 A duty waiver of Full duty waiver applicable on
Rs.10.00 per kg on B’ importation of chillies was
Onions was granted extended
until 30 April 2007.
29 March 2007 A duty waiver of Rs.5.00
per kg was granted on
importation of potatoes
until 30 April 2007.
01 June 2007 Duty waivers of Rs.5.00 Duty waivers of Full duty waiver applicable on
per kg on potatoes, was Rs.10.00 per kg on importation of chillies was
granted. B’Onions, was granted. extended until 30 June 2007.
Food Crisis 01 August 2007 Single specific customs duty rates were introduced on ten selected food items instead of the surcharge on imports,
Value Added Tax (VAT), Social Responsibility Levy (SRL), cess, Port and Airport Development Levy (PAL) and
other charges applicable on them at the customs.
15 August 2007 A duty waiver of

Rs.5.00 per kg was
granted on importation
of B’ Onions until 31
December 2007.
20 August 2007 A duty waiver of Rs.5.00
per kg was granted on
until 31 October 2007.
15 October 2007 A full duty waiver was

granted on importation
17
of semi milled or wholly
milled rice and broken
rice until 31 December
2007.
December 2007: Duty waivers, granted on essential food items, were removed except for edible oil.
January 01, 2008: Surcharge on customs duty was increased to 15 per cent from 10 per cent.
January 09, 2008: A single levy viz., Special Commodity Levy (SCL) was introduced on ten essential goods in place of custom duty,
VAT, PAL, SRL and other charges.
August 25, 2008: Custom duty on the
importation of rice was
suspended.
September 16, 2008: The SCL on the
was increased from Rs. 15
per kg to Rs.20 per kg.
Pre-GFC January 01, 2009: PAL rate was increased from 3 per cent to 5 per cent.
February 04, 2009: SCL on importation of the SCL on importation of SCL on importation of the
other potato was the B’Onion was following food items was
increased valid for a increased valid for a increased valid for a period of six
period of six months period of six months: months:
from Rs. 20 per kg to Rs. from Rs. 20 per kg to Chillies (neither crushed nor
25 per kg Rs. 25 per kg ground) from Rs. 30 per kg to
Rs. 40 per kg.
Chillies (crushed or ground) from
Rs. 40 per kg to Rs. 50 per kg.
Post GFC September 30, 2009 SCL on importation of SCL on importation of SCL on importation of dried
other potatos was Bónion was extended chillies was extended for another
extended for another 3 for another 3 months at 3 months at previous rates.
months at previous rates. previous rates.
November 10, 2009 A recoverable tax rate of SCL on importation of SCL on importation of SCL on importation of the
Rs. 5 per kg was other potato was reduced the following food following food items was
imposed instead of all valid for a period of three items was reduced valid reduced valid for a period of
taxes and levies applied months: for a period of three three months:
on importation of rice. Rs. 25 per kg to Rs. 10 months: Chillies (neither crushed nor
per kg B’onion Rs. 25 per kg ground) from Rs. 40 per kg to
to Rs. 10 per kg Rs. 20 per kg
SCL of Rs. 10 per kg Chillies (crushed or ground) from
was imposed on Rs. 50 per kg to Rs. 25 per kg
18
importation of red
onion valid for three
months in lieu of
customs duty and all
other taxes.
December 21, 2009 SCL of Rs. 1 per kg on
importation of rice was
imposed valid for three
months in lieu of
customs duty and all
other taxes
19
Table 7b: Trade policy measures on coconut and related products, milk and milk products, sugar and wheat during 2005-2009
Period Month Coconut and related products Milk and milk Sugar Wheat
products
Pre-crisis 01 June 2007 Duty waivers of
Rs.2.00 per kg on
cane sugar, beet
sugar, other sugar
and sakkara, Rs.3.00
per kg on white
crystalline cane sugar
and white crystalline
beet sugar were
granted.
Food Crisis 01 August 2007 Single specific customs duty rates were introduced on ten selected food items instead of the surcharge on
imports, Value Added Tax (VAT), Social Responsibility Levy (SRL), cess, Port and Airport Development
Levy (PAL) and other charges applicable on them at the customs.
01 August 2007 Import duty on importation of copra A duty waiver of Rs.
was removed until 29th February 1.50 per kg was
2008. granted on
A 10 per cent duty waiver was importation of beet
granted on importation of edible oil sugar and jaggery.
for a period of one month.
December 2007: Duty waivers, granted on essential food items, were removed except for edible oil.
January 01, 2008: Surcharge on customs duty was increased to 15 per cent from 10 per cent.
January 09, 2008: A single levy viz., Special Commodity Levy (SCL) was introduced on ten essential goods in place of custom
duty, VAT, PAL, SRL and other charges.
April 03, 2008 A duty waiver of 23 per cent was
granted on the importation of Palm
oil and Coconut oil.
May 01, 2008 SCL was introduced
on the importation of
milk powder
July 25, 2008 The duty waiver granted on the
importation of Palm oil and Coconut
oil was reduced from 23 percent to 13
20
percent.
Pre GFC November 07, 2008: SCL on imported SCL on the Import Duty on
milk powder was importation of sugar Wheat Grain was
increased from Rs. 5 was increased from increased to 10
to 15 per kg. Rs. 14 to 16 per kg. percent from 6
percent.
Custom duty on raw A 5 percent Cess
sugar was increased was imposed on the
from Rs. 10 per kg. importation of
to Rs. 12 per kg. Wheat flour.
December 03, 2008: Custom duty on edible oils was
increased.
January 01, 2009: PAL rate was increased from 3 per cent to 5 per cent.
January 21, 2009: SCL on the importation of
milk powder was increased
from Rs.15 to 35 per kg for
a period of six months.
February 04, 2009: Custom duty on
importation of wheat
grain was revised
from 15 per cent to
15 per cent or Rs. 10
per kg whichever is
higher.
February 27, 2009: SCL on importation of milk
powder was increased from
Rs. 35 per kg to Rs. 55 per
kg valid for a period of 6
months.
March 31, 2009 SCL of Rs. 55 per kg on Custom duty on
importation of milk powder importation of wheat
was removed and custom flour was increased
duty was reimposed as 28 from 15 per cent or
percent or Rs. 125 per kg, Rs. 12.50 per kg to
whichever is higher. 15 per cent or Rs. 16
Total recoverable tax/levies per kg whichever is
on milk powder imports was higher.
Rs. 125 per kg.
21
Post GFC April 07, 2009 Custom duty on importation of
some categories of edible oil
in the form of crude was
increased from 28 per cent or
Rs. 35 per kg to 28 per cent or
Rs. 55 per kg whichever is
higher.
Custom duty on importation of
virgin coconut oil and
margarine was increased from
28 per cent or Rs. 40 per kg to
28 per cent or Rs. 60 per kg,
whichever is higher.
July 24, 2009 Total recoverable tax/levies
on milk powder imports was
increased from Rs. 125 per
kg. to Rs. 145 per kg.
November 10, 2009 Total recoverable tax rate SCL on importation
on importation of milk of sugar was reduced
powder was reduced from from Rs. 16 per kg to
Rs. 145 per kg to Rs. 100 Rs. 6 per kg valid for
per kg. a period of three
months.
December 18, 2009 A full custom duty
waiver was granted
on importation of
wheat grain till
March 31, 2010.
December 21, 2009 SCL on importation
of sugar was reduced
from Rs. 6 per kg to
Rs. 1 per kg valid for
a period of three
months.
Source: Central bank of Sri Lanka
22
a. Stimulus package
The government unveiled an economic stimulus package aimed at revitalizing several key
industries including tea, rubber, cinnamon, apparel, leather, tourism and construction in January
2009 (Box 2).
Box 2: Stimulus Package of the Sri Lankan government on Tea, Rubber, Cinnamon
Tea
The government will provide one month's working capital loans to tea factories through commercial banks at
concessionary rates on the recommendation of the Sri Lanka Tea Board (SLTB). It will also suspend the recovery of
loans extended for tea factory modernization under the Plantation Development project for a period of one year. The
government is also establishing a state tea trading institution sponsored by the SLTB to intervene in the tea auction to
purchase as and when required in order to obtain a price of Rs.45 per kg for green leaf when the price of tea reaches
Rs.300 per kg. Such purchases of tea are to be supplied to the suppliers of countries such as Iran and Russia under
concessionary loans.
The government will also maintain a CESS on the import of tea and restrict the importation of substandard teas to Sri
Lanka as well as provide a mixture of fertilizer at Rs.1000 per 50 kg bag to tea smallholders until the price of green
leaf reaches Rs.45 per kg. A 2% extra CESS will be imposed when the export price of tea exceeds Rs.300 per kg.
Those funds will be used to recover the fertilizer and other costs.
Rubber
The government will implement a subsidy scheme for manufacturers who are engaged in the rubber industry in order
to ensure that the rubber grower obtains at least Rs.150 per kg. The present CESS will be increased by Rs.5 per kg on
imported latex and other rubber products. The export CESS will be suspended from the domestic rubber
manufacturing industries for one year.
The 15% electricity surcharge will be suspended and the price of furnace oil will be reduced by Rs.10 per litre. Interest
rates of loans of the rubber manufacturing sector will be reduced and the repayment period will be extended. The
government will also provide financial assistance to local industrialists to produce tyres used in buses and trucks in
place of imported tyres.
Cinnamon
A special subsidy scheme will be implemented for cinnamon exporters through the Export Development Board in
order to increase the price of cinnamon.
23
b. Long term strategy: Investment in agricultural research
Table 9 shows the total estimated budget for research and development by the Department of
Agriculture. Even though an increase in allocations across commodities can be observed over
the years in nominal terms, a significant drop in allocations are recorded from 2007 to 2008 in
real terms3. Interestingly, a sizable increase is recorded from 2009 to 2010 indicating that the
government had taken a conscious effort to promote the agricultural sector.
Table 9: Summary of the total estimated budget for the implementation of Research and
Development program with respect to commodity groups (Rs. Million).
Sector 2006 2007 2008 2009 2010

Rice 235.15 296.22 341.93 389.12 435.58
(8.75) (-5.82) (10.00) (7.31)
Other Field 62.06 60.59 68.56 69.68 104.20
Crops (-15.72) (-7.68) (-1.76) (43.36)
Vegetables 62.57 70.19 77.49 80.26 84.79
and Tuber (-3.16) (-9.92) (0.12) (1.28)
Crops
Potato 10.76 18.64 13.93 9.08 8.99
(49.55) (-39.03) (-36.99) (-5.08)
Fruits 22.80 22.45 21.86 24.20 19.96
(-15.00) (-20.55) (7.01) (-20.93)
Floriculture 40.90 56.50 62.10 66.80 81.60
(19.25) (-10.32) (3.98) (17.11)
Human 85.50 162.00 192.00 171.00 135.00
Resource (63.57) (-3.30) (-13.91) (-24.32)
Development
Grand Total 519.74 686.59 777.87 810.14 870.12
(14.04) (-7.56) (0.67) (2.96)
The values in parenthesis are the percentage change from the previous year in real terms
calculated by the authors.
Source: Department of Agriculture
8. CONCLUSIONS
Our analysis shows that there was substantial transmission of the international price increases
during the period of rising global food prices. However, government responses moderated the
extent of transmission as prices continued to increase. It initially lowered restrictions on imports
and adopted a fairly liberal food import policy, providing direct and indirect import subsidies to
3
The CCPI was used to convert nominal values into real values and the indices were 140.8, 163.1, 199.9, 206.8 and
215.71 for 2006, 2007, 2008, 2009 and 2010 (January-June) respectively (Central Bank of Sri Lanka).
24
maintain domestic prices lower than world prices. But as world food prices started to decline
with the onset of the global financial crisis, there was a policy shift to a more protectionist
stance, shifting to greater emphasis on food self sufficiency and encouragement of domestic
production.
It is more difficult to assess the impact of the global financial crisis on food security. The initial
impact of the GFC was a negative shock to the Sri Lankan economy, with some adverse
movement in terms of trade (though the fall in oil price was a significant plus factor), and a
slowing of export and import growth and a deterioration of the current account problems.
However, government economic policies in the second half of 2008 were dominated not by
considerations of the FC impact but by internal developments which saw the end of the nearly
three decade long civil war. The post-GFC expenditure and investment patterns indicate some
renewal of policy emphasis on agriculture and food but it is difficult to disentangle the domestic
impact of the GFC from both government and private sector responses to the end of the civil war
and elections in 2009.
REFERENCES
Central Bank of Sri Lanka, Annual Reports, Various years.
Dawe, D. (2008). Have recent increases in international cereal prices been transmitted to
domestic economies? The experience in seven large Asian countries. ESA Working paper
No.08-03. Agricultural Development Economics Division, The Food and Agriculture
Organization of the United nations.
Gunatilaka, R.(2009). Rapid assessment of the Global economic crisis on employment and
Industrial relations in Sri Lanka. International Labour Organization. Available
from<http://www.ilo.org/wcmsp5/groups/public/---asia/---ro-bangkok/---sro-
bangkok/documents/publication/wcms_116131.pdf>
Household expenditure and income survey 2006/07, Department of census and statistics.
Ministry of Finance and Planning Sri Lanka. Available from
<http://www.statistics.gov.lk/HIES/HIES2006_07Website/ index.htm>
Samaratunga, P.A. (2008). Does Foodflation Call for Agricultural Reforms?. Sri Lanka State of
the Economy (SOE) Report 2008, Institute of Policy Studies, Colombo, Sri Lanka.
Monthly Bulletin, Central Bank of Sri Lanka. Various years
Central Bank of Sri Lanka, Recent Economic Developments, Available

from.<http://www.cbsl.gov.lk/pics_n_docs/10_pub/_docs/efr/recent_economic_develop
ment/Red09En/red_2009_index.htm>
25
Pursell, G. (2010). Trade Policies in South Asia. A Chapter in Routledge Handbook of South
Asian Economics (to be published).
World Bank (2009) Sri Lanka Economic Update September 2009, Economic Policy and Poverty
team, South Asia Region. Available from
<http://siteresources.worldbank.org/SRILANKAEXTN/Resources/233046-
1237173995853/SLEconomicUpdateOctober202009.pdf>
Statistical Report 2008, Sri Lanka Tourism Development Authority.
Trade Map, International Trade Database. Available from < http://www.trademap.org>

Weerasooriya S.A, Weerahewa J and Kodithuwakku K.A.S.S (2009), Global Food Crisis and the
Sri Lankan Economy: An Analysis Of Price Transmission and Food Consumption
Patterns During 2005-2009, Paper Presented at the International Conference on Food
Security in the Arab Countries: New Challenges and Opportunities in the context of Price
Volatility at Sultan Qaboos University, Oman from 2 – 4 March, 2010.
26
Central Bank Trade Indices - Export Unit Value
260
Export unit value: Base 1997=100 1 2 3 4
240
220
200
180
160
140
120
100
Jul- Nov- Mar- Jul- Nov- Mar- Jul- Nov- Mar- Jul- Nov- Mar- Jul- Nov-
05 05 06 06 06 07 07 07 08 08 08 09 09 09
Appendix Figure 1: Central Bank Trade Indices – Export Unit Values
Central Bank Trade Indices - Import Unit Value
350
1 2 3 4
Import unit value: Base 1997=100
300
250
200
150
100
05 05 06 06 06 07 07 07 08 08 08 09 09 09
Appendix Figure 2: Central Bank Trade Indices – Import Unit Values
27
Appendix Table 1: Unit values of exports and imports and TOT by quarter
Year Quarter Unit value of exports Unit value of imports TOT

2007.0 2007-1 197.7 195.8 101.0
2007-2 201.9 215.8 93.6
2007-3 217.0 220.5 98.4
2007-4 186.8 214.3 87.2
2008.0 2008-1 209.7 230.8 90.9
2008-2 213.4 266.0 80.2
2008-3 226.9 272.9 83.2
2008-4 183.3 222.9 82.2
2009.0 2009-1 197.6 192.6 102.6
2009-2 221.1 223.4 99.0
2009-3 230.6 219.2 105.2
2009-4 227.1 216.3 105.0
28
Export unit value for Garments & textiles
Export unit value: Base 1997=100 250

1 2 3 4
200
150
100
50
0
05 05 06 06 06 07 07 07 08 08 08 09 09 09
2/23/2010 1
Appendix Figure 3: Export unit values for Garments and Textiles
Export unit value for Tea
300
Export unit value: Base 1997=100
1 2 3 4
250
200
150
100
50
0
05 06 06 07 07 08 08 09 09
2/23/2010 27
Appendix Figure 4: Export unit values for Tea
29
Export unit value for Rubber

1 2 3 4
450
400
350
300
250
200
150
100
50
0
05 05 06 06 06 07 07 07 08 08 08 09 09 09
3 Pre GFC (263) 4 Post GFC (242.03)

2/23/2010 28
Appendix Figure 5: Export Unit Values for Rubber
Export unit value for Coconut
300
Export unit value: Base 1997=100
1 2 3 4
250
200
150
100
50
0
05 05 06 06 06 07 07 07 08 08 08 09 09 09
2/23/2010 29
Appendix Figure 6: Export Unit Value for Coconut
30
Export unit value for Other Agricultural Products

1 2 3 4
250
200
150
100
50
0
05 06 06 07 07 08 08 09 09
3 Pre GFC (164.5) 4 Post GFC (170.2)

2/23/2010 30
Appendix Figure 7: Export Unit Values for Other Agricultural Products
Import unit value for Food & drink
400
1 2 3 4
Import Value: Base 1997=100
350
300
250
200
150
100
50
0
05 05 06 06 06 07 07 07 08 08 08 09 09 09
2/23/2010 31
Appendix Figure 8: Import Unit Values for Food and drink
31
Import unit value for Wheat
500
1 2 3 4
450
400
350
300
250
200
150
100
50
0
05 05 06 06 06 07 07 07 08 08 08 09 09 09
Appendix Figure 9: Import unit values for wheat
Import unit value for Fertilizer
1400
1 2 3 4
1200
1000
800
600
400
200
0
05 05 06 06 06 07 07 07 08 08 08 09 09 09
2/23/2010 33
Appendix Figure 10: Import unit values for Fertilizer
32
Import unit value for Petrolium
1600
Import Value: Base 1997=100 1 2 3 4
1400
1200
1000
800
600
400
200
0
05 05 06 06 06 07 07 07 08 08 08 09 09 09
1 Pre Crisis (472) 2 Food Crisis (662.9)
2/23/2010 34
Appendix Figure 11: Import unit values for Petroleum
Import unit value for Crude oil

1400
1 2 3 4
1200
1000
800
600
400
200
0
Jul-05Nov-05Mar-06Jul-06Nov-06Mar-07Jul-07Nov-07Mar-08Jul-08Nov-08Mar-09Jul-09Nov-09
Appendix Figure 12: Import unit values for Crude oil
33
Import unit value for Textiles
200
1 2 3 4
180
160
140
120
100
80
60
40
20
0
05 05 06 06 06 07 07 07 08 08 08 09 09 09
2/23/2010 36
Appendix Figure 13: Import unit values for Textiles
34
Rice Prices
1200
1000
800
US$/MT
600
400
200
0
Jul-05 Nov-05 Mar-06 Jul-06 Nov-06 Mar-07 Jul-07 Nov-07 Mar-08 Jul-08 Nov-08 Mar-09 Jul-09 Nov-09
World price Wholesale price Retail price Farmgate price
Single specific customs

duty rates introduced
Full duty waiver granted for semi milled or
wholly milled rice & broken rice imports
Duty waiver removed

Surcharge on custom duty
increased from 10% to 15%
SCL introduced
Custom duty on rice

imports suspended
PAL rate increased from 3% to 5%
A recoverable tax rate (Rs.5/kg) imposed

instead of all import taxes & levies
Appendix Figure 14: Movement in world and domestic rice prices and policy measures
35
Potato Prices
1000 400
900
350
800
300
700
250
600
US$/MT
US$/MT
500 200
400
150
300
100
200
50
100
0 0
Jul-05 Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09
Wholesale price Farmgate price World price
Duty waver (Rs5/kg) on imports

granted until 30.04.2007
Duty waver Rs5/kg introduced
again.
Single specific customs duty
rates introduced
Duty waver (Rs5/kg) on imports
granted until 31.10.2007
Duty waver removed
Surcharge on customs duty
SCL introduced
SCL increased from Rs.15 to
Rs.20/kg
PAL increased from 3% to 5%
SCL on other potato imports

increased from Rs20 to
Rs.25/kg for six months
SCL of other potatoes
extended to 3 months
SCL on other potato imports reduced from Rs25 to Rs.10/kg for three months 36
Appendix Figure 15: Movement in world and domestic potato prices and policy measures
Fresh Fish Prices
8000
1 2 3 4
7000
6000
5000
US$/MT
4000
3000
2000
1000
0
Jul-05 Nov- Mar-06 Jul-06 Nov- Mar-07 Jul-07 Nov- Mar-08 Jul-08 Nov- Mar-09 Jul-09 Nov-
05 06 07 08 09
Retail Price (Seer) World Prices (Salmon)
1 Pre Crisis (4693, 4444) 2 Food Crisis (5216, 4947)
3 Pre GFC (5358, 4022) 4 Post GFC (5474, 5085)

2/23/2010 55
Appendix Figure 16: Movement of world and domestic fresh fish prices
Shrimp Prices
16000
1 2 3 4
14000
12000
10000
US$/MT
8000
6000
4000
2000
0
05 06 06 07 07 08 08 09 09
Retail Price World Price
3 Pre GFC (9896, 4943) 4 Post GFC (7917, 4275)

2/23/2010 58
Appendix Figure 17: Movement of world and domestic shrimp prices
37
Chicken Prices
4000
1 2 3 4
3500
3000
2500
US$/MT
2000
1500
1000
500
0
05 06 06 07 07 08 08 09 09
World Price Retail Price
3 Pre GFC (1919, 2657) 4 Post GFC (1881, 2513)

2/23/2010 59
Appendix Figure 18: Movement in world and domestic chicken prices
38
Coconut Prices
1,800
1,600
1,400
1,200
US$/MT
1,000
800
600
400
200
0
05 05 06 06 06 07 07 07 08 08 08 09 09 09
World cococut oil Sri Lankan Coconut cernel
Single specific customs duty

rates introduced
Import duty on copra removed
until 29.04.2008
10% duty waiver on import of

edible oil for one month
Surcharge on customs duty

SCL introduced
23% duty waiver on palm

and coconut oil imports
Duty waiver on palm and coconut

oil imports reduced to 13%
Custom duty on edible oil

increased
PAL increased from 3% to 5%
Custom duty on crude edible oil imports increased from 28% or Rs.35/kg to 28% or Rs. 55/kg
(whichever higher)/ Custom duty on virgin coconut oil and margarine imports increased from 28%
or Rs.40/kg to 28% or Rs. 60/kg (whichever higher)
Appendix Figure 19: Movement in world and domestic coconut prices and policy measures 39
Fuel Prices
140 10000
1 2 3 4
Sri Lanka (Wholesale Price index Base: 1974=100)

9000
120
8000
100 7000
World (US $ per barrell)
6000
80
5000
60
4000
40 3000
2000
20
1000
0 0
Jul-05 Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09
World Sri Lanka
1 Pre Crisis (62.57, 4712) 2 Food Crisis (100.43, 7298)
3 Pre GFC (50.14, 7257) 4 Post GFC (67.63, 5992)

2/23/2010 1
Appendix Figure 20: Movement in world and domestic fuel prices
40
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Conference Paper · March 2010

Jeevika Weerahewa Sarath S Kodithuwakku

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Assessment of Ecosystem Services of Homegarden Agroforestry in Jaffna District View project

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Jeevika Weerahewa and Sarath S. Kodithuwakku

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a. Linkages of Sri Lankan Economy with the Global Economy

Figure 1: Major Trading partners of Sri Lanka, 2008

b. Trade Policy Framework of the Sri Lankan Government

Essential Goods Interest Rate

PRE CRISIS FOOD CRISIS PRE GFC Post GFC

Figure 3: Distinction among different periods

Scenario A: Counterfactual price levels were assumed to be same as pre-crisis average

Category Variable Pre-crisis Food Crisis Pre-GFC Post-

Terms of Trade (TOT)

1 Pre Crisis (98.2) 2 Food Crisis (87.5)

Figure 5: Changes in Terms of Trade

Table 2: Tourist arrivals

a. Gross National Income

Item 2005 2006 2007 2008 (a) 2009 (b)

Total CCPI Food and Non Transport

1 Pre Crisis 2 Food Crisis

3 Pre Global Financial Crisis 4 Post Global Financial Crisis

Figure 5: Movement of CCPI

Period under Price Indices Change of rate of Change of rate of prices

GFC compared International 22.23% -7%

c. Prices in agricultural sub-sectors

Rice Rs/kg Potato Rs/kg Fuel

a. External sector policy framework

Box 1: External sector policy framework in Sri Lanka

b. Policies on agricultural sub-sectors

Table 8: Average Import Duty Collection Rate (a)

Item 2005 2006 2007 2008 (b) 2009 (c)

Period Month Rice Potato Onion Chillie

15 August 2007 A duty waiver of

15 October 2007 A full duty waiver was

Source: Central bank of Sri Lanka

Source: Central Bank of Sri Lanka

Sector 2006 2007 2008 2009 2010

Central Bank of Sri Lanka, Annual Reports, Various years.

Monthly Bulletin, Central Bank of Sri Lanka. Various years

Central Bank of Sri Lanka, Recent Economic Developments, Available

Statistical Report 2008, Sri Lanka Tourism Development Authority.

Trade Map, International Trade Database. Available from < http://www.trademap.org>

1 Pre Crisis (185.3) 2 Food Crisis (212.4)

Appendix Figure 1: Central Bank Trade Indices – Export Unit Values

Central Bank Trade Indices - Import Unit Value

1 Pre Crisis (188.6) 2 Food Crisis (244.3)

Appendix Figure 2: Central Bank Trade Indices – Import Unit Values

Year Quarter Unit value of exports Unit value of imports TOT

Export unit value: Base 1997=100 250

1 Pre Crisis (171.1) 2 Food Crisis (184.7)

Appendix Figure 3: Export unit values for Garments and Textiles

Export unit value for Tea

1 Pre Crisis (177.7) 2 Food Crisis (250.5)

Appendix Figure 4: Export unit values for Tea

Export unit value: Base 1997=100 500

1 Pre Crisis (260.5) 2 Food Crisis (359.7)

3 Pre GFC (263) 4 Post GFC (242.03)

Appendix Figure 5: Export Unit Values for Rubber

Export unit value for Coconut