World Bank's New Warning On Sri Lanka Amid Severe Food Price Inflation

Sri Lanka is ranked fifth among the 10 countries with the highest food price inflation in the world, according to the latest World Bank assessment.

In its Food Security update, the World Bank said trade policy actions on food and fertilizers have surged since the beginning of the war in Ukraine. Countries actively used trade policy to respond to domestic needs when faced with potential food shortages at the beginning of the COVID-19 pandemic.

As of July, Sri Lanka is experiencing significant shortages in the domestic food supply.

In Sri Lanka, agricultural production has decreased by 40 per cent to 50 per cent because of fertilizer shortages, and there is a lack of foreign exchange to purchase food imports.

"Fertilizer and fuel (for land preparation, transport, and harvesting activities) shortages are expected to limit the food supply. Some relief is coming from the first shipment of 44,000 tonnes of urea supported by Indian credit (and 21,000 tonnes is expected to arrive soon). There has been an increase in demand for Indian rice, with roughly 9.6 million tonnes shipped this year," the assessment says.

Exporters, concerned that export restrictions will be introduced (as has been done for wheat), are moving quickly to open letters of credit and have signed contracts to export 1 million tonnes of rice from June through September 2022. Moreover, food price inflation reached 80 per cent in Sri Lanka.

This comes as food price inflation remains at a multiyear high in South Asian countries including Pakistan. The first Ukrainian grain shipment is underway, but challenges to food security persist.

According to the World Bank assessment, the agricultural, cereal, and export price indices globally were stable over the past two weeks, with the agricultural and cereal price indices 1 per cent higher than two weeks ago.

Domestic food price inflation remains high around the world, with high inflation continuing in almost all low and middle-income countries and the share of high-income countries with high inflation increasing sharply.

A recent World Bank blog discussed three policy proposals for making fertilizers more accessible and affordable.

Firstly, countries should lift trade restrictions or export bans on fertilizers.

Secondly, World Bank says fertilizer use must be made more efficient, for instance by providing farmers with appropriate incentives that do not encourage overuse.

Furthermore, the international lender called for investment in innovation to develop best practices and newer technologies that may help increase output per kilogram of fertilizer used.