SALT GAP: Unlike Sri Lanka which is operating ‘self-sufficiency’ and import protection to limit supply and drive up prices, India is export competitive in salt. The nation exported 13.73 million tonnes of salt last year.
Saturday May 24, 2025 8:58 am
Saturday May 24, 2025 8:58 am
ECONOMYNEXT – In the wake of the controversy over import restrictions and price controls that led to shortages of red rice, Sri Lanka’s Trade Ministry is now coming under fire over the creation of a new ‘mafia’ in salt.
Sri Lanka’s so-called ‘rice mafia’ and ‘maize mafia’ are crony Mercantilists or rent seekers in economic terms, who are allowed to exploit consumers under cover of 1970s style import licenses.
Food being an essential item is one of the easiest ways the businesses close to the elected rulers can extract extra profits or ‘rents’ from the consumers.
The rent seekers gained market power during the ousted Rajapaksa regime, by restricting competition with state help and were inherited by the current administration.
Unlike an import duty, which pushes up the cost of food by a fixed amount determined by the government, above the price compared to an export-competitive country like India, import licensing by the state places a quantitative restriction on consumers, where prices can soar far above the tax plus price.
Salt Mafia
“Now a salt mafia has developed in this country,” opposition legislator Rauff Hakeem told parliament.
“Is someone giving an incentive to produce this salt mafia? It is against this type of practices that people gave a big mandate to the government.”
Some private salt traders were also involved in the board of directors of a state salt company, Hakeem alleged.
“The price of a packet of salt which was 130 rupees is now 360 rupees,” Hakeem said. “It can be sold at 150 rupees or even 200 rupees.
“Instead of doing that, a big salt mafia that places big burden on the people has now developed.”
Export Competitive Salt
Another opposition legislator, Mujibur Rahuman, alleged earlier in the week that imported salt cost 24 rupees a kilogram and there was a tax of 40 rupees a kilogram which meant that imported salt could be sold at much lower prices than now even after other processing costs.
According to online offers, Indian crystalline salt is priced at 4,500 Indian rupees a tonne (about 16,000 Sri Lanka rupees or 16 rupees a kilogram) and powdered salt was around 5,500 Indian rupees a tonne (about 19,000 rupees).
“This government is also responsible for the salt mafia,” Hakeem said. “From December it was known that salt production was down. But imports were delayed and delayed.
“The same thing happened in the case of the rice mafia. You wait till there is a shortage and then import.”
Producer Pressure
Trade Minister Wasantha Samarasinghe admitted that initial plans to import a larger quantity of rice was stopped at the request of a salt producer association, limiting competition to their members from foreign producers.
“We first imported about 12,500 tonnes of salt,” Minister Samarasinghe told reporters in Colombo Monday.
“The salt producers association told us not to bring any more salt after we brought the 12,000 tonnes.”
The natural tendency of producers, whether private or state owned, is to restrict competition.
Businesses that control the economic freedoms of the general public through the coercive power of the state (the Western European style nation-state’s ability to control the public through violent action and enforce its writ including through arrests, jailing, customs duties and also fines using armed men) to make unjust profits are known as Mercantilists.
In the UK in particular until so-called ‘capitalist’ entrepreneurs behind the industrial revolution ushered in free trade, ending the Corn Laws in 1840s in particular, reducing food prices and boosting the disposable incomes of factory workers, Mercantilism was the dominant economic system.
READ MORE : What Is Mercantilism?
The Dutch East India Company and British East India companies which had trading monopolies in multiple goods ranging from tobacco, salt, cinnamon and even slaves were the top exponents of the Mercantilist ideology. The corporations, which operated under Royal Charters, had the same power to control the consumers that state monopolies had in later centuries under Western-style Acts of Parliament.
The original Mercantilist trading monopolies in Sri Lanka were dismantled by the British civil service but trade controls returned after independence with the central bank creating forex shortages through direct and open market operations.
Minister Handunetti said in 1997, salterns in Mannar were leased to various agencies and co-operative associations.
Some of the shares of salt co-operatives and worker shares were bought by Raigam Salt, he said.
Hakeem said the production monopoly was broken by leasing the Mannar salterns.
However, special interests went behind ‘powerful people’ calling for restrictions, Hakeem said.
Lanka Salt in Hambantota end up under the control of the ETF after a ‘privatization’ exercise.
Salterns in Hambantota were organized as a Ceylon Government Department by Leonard Woolf, a British Colonial-era civil servant who served as Government Agent for the district. The Department of Salt was Corporation through an Act of Parliament.
Consumer Sovereignty vs State Supported Anti-competitive practices
Under a free trading regime – where the poorest person had economic freedoms and could challenge the most powerful businesses by exercising consumer sovereignty and buying from another supplier – there will be competition from abroad even if there was only one producer within the country.
Classical economist Adam Smith was a key advocate of restoring the economic freedoms of the common man and not allowing businesses, manufacturers or traders to exploit the public with the government supported anti-competitive practices.
Smith advised policymakers to think twice before following the proposals of producers and traders to limit competition.
“The interest of the dealers, however, in any particular branch of trade or manufactures, is always in some respects different from, and even opposite to, that of the public,” Smith pointed out in 1776, the heyday of classical Mercantilism.
“To widen the market and to narrow the competition, is always the interest of the dealers. To widen the market may frequently be agreeable enough to the interest of the public;
“but to narrow the competition must always be against it, and can serve only to enable the dealers, by raising their profits above what they naturally would be, to levy, for their own benefit, an absurd tax upon the rest of their fellow-citizens.
“The proposal of any new law or regulation of commerce which comes from this order ought always to be listened to with great precaution, and ought never to be adopted till after having been long and carefully examined, not only with the most scrupulous, but with the most suspicious attention.
“It comes from an order of men whose interest is never exactly the same with that of the public, who have generally an interest to deceive and even to oppress the public, and who accordingly have, upon many occasions, both deceived and oppressed it.”
Lifting the import license could bring imports faster with the later importers trying to undercut the first importers and driving prices down.
In the case of rice, the imports were only allowed by a state agency.
Last year government also came under public criticism after the Trade Ministry initially only allowed a state agency to import rice with other kept out through a licensing system. As the SoE failed to import rice in time.
Hakeem said when he was a cabinet minister also similar problems had happened. State agencies are used as a cover, he said.
The Salt Shortfall
Industries Minister Sunil Handunetti said domestic salt production fell due to excessive rain, which stopped the crystallization of salt.
A production round where saline water from the sea was pumped around the saltern took about 7 months.
With the help of wind and sunlight, the content of sodium chloride had to be raised from 1 to 24 percent in the brine for salt to crystallize. The process took 3 to 4.5 months as the brine was pumped from one section of the saltern to another.
“If there is rain in the period, the percentage of salt falls again,” Minister Handunetti said.
Hambantota received 164 millimeters of rain in December, Puttalam 44 and Mannar 118 and Elephant Pass 232 millimeters. In April rain in Hambantota was 140 millimetres in 2025 but it was only 26 mm in 2024 and 40 mm in 2023. In March rain was 142 mm this year it was only 23 mm in 2023.
The brine was then put into tanks for 45 days to crystallize. Then the harvested raw salt was piled for magnesium to condense for another 45 days. (Colombo/May24/20250)
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