ECONOMYNEXT – A state-run food trading firm like Sri Lanka’s Paddy Marketing Board which extensive control over purchase and sale of grains in Bolivia has failed to control the soaring price of rice amid import difficulties, according to media reports.
Sri Lanka is currently facing soaring rice prices amid 220 dollar per tonne import taxes and a domestic economic recovery, ahead of the main rice harvest.
Rice was being sold at 500 Bolvianos per quintal (about 100 kilograms), when it should be around 300, Vice Minister of Consumer Protection, Jorge Silva was quoted as saying by the Fides News Agency.
The State Food Production Support Company (Empresa de Apoyo a la Producción de Alimentos or Emapa) was selling rice at 220 bolivianos per quintal without profits, Silva said.
“If you add transportation and utilities, the best quality rice should cost Bs 300 (about 140 rupees a kilog), but it is more than Bs 500 (220 rupees a kilogram). In some places it has reached Bs 750,” Silva was quoted as saying.
Bolivia was facing forex shortages making it difficult to import foods, as well as fuel.
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By December 2024 the parallel exchange rate was around 11 to 12 Bolivianos to the US dollar compared to the official exchange rate of 6.9 to the US dollar.
Due to the parallel exchange rate and subsized or price-controlled foods, there was also food smuggling out of the country. Authorities regularly raid what are called ‘contraband’.
The IMF has warned two years ago that the liquidity created by the central bank was draining foreign reserves and the agency will not be able to maintain its pegged exchange rate if the practice continued.
Maintaining exchange rate pegs and stopping social unrest is a fairly simple exercise as long as parliaments are willing to bring laws against the central bank to stop its ability to print money to target a policy rate or for any other purpose (macro-economic policy).
The IMF usually advocates central bank independence and controlling budget deficits and ‘flexible’ exchange rates.
But the problem does not get solved as macro-economists continue to target policy rates with inflationary liquidity operations, sometimes with IMF backed data-driven monetary policy without a clean float.
Several African nations have defaulted amid flexible inflation targeting without a clean float and Sri Lanka also went into a borrowing frenzy and rapid depreciation after a war ended eventually defaulting.
Bolivia’s central bank has finance both the budget and SOEs, according the International Monetary Fund country report, effectively suppressing rates.
Bolivia has expanded state enterprises and controlled the prices of number of items including fuel in its March to the left (MAS) critics have said.
Bolivia’s central bank was also creating money through domestic dollar rupee swaps, like in Sri Lanka.
Unlike in Sri Lanka however, the IMF mission to Bolivia has warned the central bank not to build reserves with swaps and showed a net reserve number.
There were large volumes of excess liquidity in the banking system, the IMF said at the time.
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Emapa itself recently opened a soya product processing plant saying it will bring down prices.
“Bolivia marks an important step towards the industrialization of its agro-industrial sector with the inauguration of a modern soybean by-product processing plant in the municipality of San Julián, Santa Cruz,” Emapa said in a statement on December 26. Emapa said 425 million Bolivianos was invested in it and it would benefit benefit 10,000 soybean-producing families.
It is not clear whether the plant also built with central bank re-finance.
Emapa also has retail stores like Sri Lanka’s Sathosa, where media reports showed long queues.
Grain production fell in 2024 partly due to diesel shortages, reports said.
The police and attorney general office had then raided a rice warehouse in Montero, Santa Cruz, al following a complaint from the Consumer Protection Ministry that there was ‘profiteering’, the report said.
Sri Lanka’s price controllers have also gone into large rice mills to check stocks.
While Bolivia is unable to import rice due to forex shortages, in Sri Lanka’s government has placed import controls and high taxes, in the pursuit of German style extreme economic nationalism or self-sufficiency (autarky) which has pushed food prices far above global levels.
While Bolivia’s Emapa has failed to control prices due to forex shortages from liquidity created by the central bank, Sri Lanka is trying to revive its Paddy Marketing Board, blaming its inactivity for soaring rice prices instead of ending import controls and reducing nationalist food taxes. (Colombo/Dec28/2024)
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