Unravelling Sri Lanka’s egg market dynamics | Sunday Observer

Unravelling Sri Lanka’s egg market dynamics

27 August, 2023

As someone who buys eggs regularly for my family, I would often visit the local market. There, I’d make a weekly stop at a familiar shop named “Bittara Kade” in Kirrillawala to buy eggs. Recently, I’ve noticed a consistent drop in egg prices. Just yesterday, an egg was priced at Rs. 44, compared to Rs. 48 the day before, and Rs. 55 a week ago.

About a month ago, eggs were selling for around Rs. 55 to 60 due to a shortage in the market. To tackle the scarcity, the Government began importing eggs from India. Interestingly, these imported eggs haven’t been available in the regular market; they’ve been mainly supplied to larger hotels and bakeries.

The All-Island Poultry Association voiced opposition to the government’s decision to import eggs, expressing concern for its potential impact on local egg producers. Their statement was, “If the import tax on animal feed was lifted, we could further bring down prices to around Rs. 43.” On July 23, Trade, Commerce and Food Security Minister Nalin Fernando said that eggs imported from India would be distributed to supermarkets and grocery stores.

Just a week ago, these imported eggs were being sold at Sathotha shops in local market for Rs. 35 Intriguingly, even without the lifted of import taxes on animal feed, the price of locally produced eggs has started decreasing rapidly, coinciding with the availability of imported eggs in the local market.

The real issue

As we are aware, the egg market shortage and higher price for eggs in Sri Lanka have emerged as significant concerns in recent months. It has been impacting the livelihoods of farmers, consumers and the overall economy of the country. Indeed, eggs are a crucial source of protein for the food requirements of many Sri Lankans, making the current egg market shortage a significant challenge for families across the country. With the shortage leading to higher egg prices, people are facing difficulties in purchasing an essential dietary component that contributes to their overall nutrition and well-being.

According to Food and Agriculture Organization (FAO) statistics, the per capita egg consumption in Sri Lanka was 4.01 kilogram in 2020. This represents a 10.9 percent decline compared to the previous year. In contrast, the estimated egg consumption in the United States is higher, reaching around 24 eggs per month per person. Such disparity reflects the challenges faced by households in our country to afford eggs due to prevailing poor conditions.

The egg market shortage in Sri Lanka has indeed affected low-income and middle-income families, as eggs are an affordable and valuable protein source compared to meat and fish. With the scarcity of eggs, consumers are forced to turn to more expensive alternatives for their protein needs, which worsened the economic burdens faced by people in the country.

The price of local eggs was about Rs. 55 to 60 per egg, while tuna costs between Rs. 1,500 to 2,500 per kilogram. Similarly, chicken is priced around Rs. 1,300 to 1,600 per kilogram, making it considerably more expensive than eggs. As a result of the higher prices for substitutes like meat and fish, many people have turned to buying more eggs.

However, the market shortage and higher prices of eggs have made it difficult for people to purchase them. The loss of purchasing power has severely impacted their lives, resulting in lower egg consumption per person. The situation has had significant effects on children and vulnerable groups within the country.

The Global Nutrition Report revealed that the malnutrition problem among children under 5 years old was 15.1 percent in 2020. However, an assessment conducted by the Family Health Bureau of the Ministry of Health in Sri Lanka reported a much higher prevalence, indicating that about 42.9 percent of children under 5 years old are experiencing some form of malnutrition, including issues like growth faltering, underweight, wasting and stunting.

The increase in malnutrition is observed across rural, urban and estate sectors of the country. One possible factor contributing to this significant rise in malnutrition could be the inability of families to afford eggs, which are an essential source of nutrition for children.

Egg shortage?

Having shared my experience with the “Bittara Kade” shop in Kirrillawala, I found myself pondering over a curious development. How is it that the local market has suddenly become flooded with eggs within the span of just a week, even though the import taxes on feed haven’t been lifted? Could it be that our local hens are sensing the heat of international competition and are determined to flaunt their egg-laying prowess? After all, prices tend to drop only if there’s an increase in production. Consequently, a pertinent question emerges: What has happened to the previously observed egg shortage in Sri Lanka?

Firstly, let us examine the egg production and its costs. Accordingly, Hector Kobbekaduwa Agrarian Research and Training Institute (HARTI), an average cost of producing an egg range from Rs. 34.56 to 41.86. However, the market price of an egg varied from Rs. 50 to 55 without imported eggs available in the local market. On average, each retail trader makes a profit of Rs. 2 to 5 from selling an egg when the egg producers sold eggs to shop owners at 50 Rs.

Consequently, there was a potential average profit of Rs. 16 or 9 per egg for a producer. So, if a large firm produces 1,000 eggs a day, the firm can make around Rs. 16,000. On average, each retail trader makes a profit of Rs. 2 to 5 from selling an egg when the egg producers sold eggs to shop owners at 50 Rs.

As a shop seller, you can make a profit around Rs. 8,000 if you were able to sell 500 eggs per a day, and when we think about the monthly profit, it is a considerable amount. Given this higher profit margin, another question arises: Why was there a shortage of eggs in the market?

Despite the attractive earnings which would motivate more production, some egg sellers and producers suggest the presence of a mafia within the egg market.

Secondly, let us examine the market structure of the egg market in Sri Lanka. When it comes to the supply of eggs to local market, “All Ceylon Egg Producers Association” plays a significant role where they have the authority to set prices of eggs. This Association consists of a few large-scale egg producers, and they control the larger share of market supply of eggs. This means that if they do not possess a larger market share of eggs, they cannot decide prices per eggs. These producers are capable of collusion which can lead to artificial supply shortage in the local market to earn excessive profits. Due to their capability, a few weeks back, they were maximising profits regardless of imported eggs since the imported eggs were not released to the open market.

In economics we call such situation as an oligopoly which is a market structure where a small number of large firms or producers dominate the market wielding substantial authority over pricing and supply of the product. This is the same thing, what people named as the “mafia” in the egg market in Sri Lanka.

What Government can do?

We can witness the Government diligently fulfilling its role—engaging in the importation of eggs while also reducing taxes on animal feed. The Government has lowered the import levy on Maize from Rs. 75 to Rs. 25 per kg. This change could set off a chain reaction, leading to much cheaper animal food. And because of that, eggs may also become cheaper. But if the Government keeps bringing in more imported eggs, it may cause some problems. These problems could include balance of payment issues for the country and health problems.

One effective solution is to promote and support small-scale producers, encourage the growth of the egg and chicken industry. This demands the formulation of new policies to encourage and protect small-scale producers across the country. The implementation of a cooperative system could offer the ideal solution to maximise yield and productivity.

One of the best examples is from India, which has the National Egg Coordination Committee (NECC), an Association of over 25,000 poultry farmers. Sri Lanka could adopt a similar mechanism. The NECC’s successful programs encompass market intervention, price support operations, egg promotion campaigns, consumer education, market research, rural market development and liaisons with the Government on critical industry matters. By incorporating such initiatives, Sri Lanka can enhance its egg production significantly.

If the egg production increases leading to surplus, it will directly enter the local market, leading to a reduction in egg prices, following the fundamental principle of supply and demand. If it is possible to initiate 100-250 small scale poultry farmers in a district, it would increase the production within a short period of time.

It is crucial to ensure that chicken feed and medicine are available at reasonable prices to maintain a lower cost of production. In this regard, the Government’s import policy should play a key role. Offering loans to small scale producers at reasonable interest rates can lead to better results in the future.

On the other hand, providing 10 chickens to each ‘Aswasuma’ family could enable them to become small-scale egg producers within a short time. By doing so, they would transition from being dependent to being contributors in the egg market. If 100,000 families were given 10 chickens each, the total number of chickens would increase by one million.

Assuming half of them start laying eggs after six months, the chicken production would rise by 500,000. Therefore, this could potentially serve as an alternative solution to break the oligopoly in the egg market.