Commodities are bubbling again. Even without an import tax, grain prices will go up as long as the dollar weakens.
When the state blocks imports to discriminate in favour of land-owning farmers, the landless poor like the little old lady is reduced to eating instant noodles heated in warm water for lunch.
The old lady's incident occurred not last month but much earlier, when rice prices were even higher than now, and bread was cheaper.
In the past people used to eat bread for breakfast and may be dinner, but they had enough money left to eat rice and vegetables and maybe meat at least for lunch.
The old lady's plight captures several problems associated with Sri Lanka's vicious food autarky. It is the taxes she pays on the instant noodles that go to subsidize the rice farmer's fertilizer.
And she may not even be classified as 'urban' because she is living in a so called 'pradeshiya sabha' area bordering the capital.High taxes work by depriving the poor or less well off. Rich people can overcome the tax.
Rural Poverty Deception
Politicians have twisted perceptions further claiming that most of the poor live in rural farming areas while cities have less poor. There may be more rich people in cities and poor may be proportionately less, but cities (which have high population density) and estate plantation areas have large numbers of poor.
According to census department data based on a 2006 survey, the Colombo district had two and a half times as many poor as the Polonnaruwa district, where only 50,000 poor people lived.
The largest number of poor people lived in the Central province (573,000) where most of the country's estates were located. Guess where the second largest number of poor people live? The Western province, with 471,000.
District-wise Ratnapura had the highest number of poor people at 292,000. Among provinces it was Sabaragamuwa with the third most number of poor at 467,000.
Salaried wage earners are the people most hurt by inflation and also high food prices. Estate workers - who among the poorest - are the ones hurt by high food prices, as well as by loss of purchasing power of wages through inflation. Little wonder then that estates have high levels of poverty.
So these are victims of Sri Lanka's food autarky. The food autarky is having domino effects. Now the problem has spread to poultry and eggs where there was no problem before. Coconut prices are also high (Nutty Prices) due to taxes.
It is already well known how import duty protection of maize sent the poultry industry into a crisis, driving up even fish prices.
How did this food insecurity and price volatility higher than the rest of the world occur? How was an old lady who used to eat rice reduced to eating Maggi noodles for lunch?
This food autarky did not happen overnight. In living memory the 'import substitution' autarky and high import duties was largely a post-second world war phenomenon in this country.
The proximate cause for import substitution were foreign exchange shortages. Acute forex shortages started after a money printing central bank was created in 1950 with an exchange rate peg to the US dollar, dismantling an earlier currency board.
When the peg was defended the central bank ran short of 'foreign exchange' and pretty soon most trade was blocked and the economy was strangled in the 1970s.
'Saving foreign exchange' became a national mantra. Import substitution domestic industry scammers had field day targeting helpless consumers, especially the poor.
From 1978 however trade controls were reduced. Instead of stopping money printing however, the government continued to print and continuously depreciate the currency.
In the 1980s the food autarky was still going strong. Billions were poured into the Mahaweli scheme to create subsistence level agriculture projects. That itself may not be a big problem.
A bigger problem was that potatoes were also grown with import protection, restricting the rights of the poor to trade. With taxes on potatoes another avenue for cheaper carbohydrates was blocked.
The rice autarky had unexpected side effects. In fact ethnic Tamils who took up arms against the state pointed to so-called 'colonization schemes' as one of the causes for the discontent.
State involvement and protection of domestic agriculture however pre-dates the creation of the central bank or the efforts of Sri Lanka's major political parties, the United National Party to grow rice or potatoes and the Sri Lanka Freedom Party to restrict trade.
It was the British colonial rulers who first proposed a import tax on paddy to promote domestic agriculture.
And that was also caused by a balance of payments crisis and high inflation. Sri Lanka's first well-documented balance of payments crisis was triggered by British civil servants who came to run this country.
Ceylon's BOP Crisis
When the British took over Sri Lanka (Ceylon) from the Dutch the island's currency was the silver Rix dollar and fanams. The Rix-dollar was so strong that it traded at a price above the silver specie value.
According to Anthony Bertolacci (A view of the agricultural, commercial and financial interests of Ceylon, 1817) a member of the first set of British civil servants to run this country, the new government started printing paper bills.
"The silver coin was gradually disappearing" he wrote, unknowingly but vividly describing a monetary phenomenon known as Gresham's Law, which describes how bad money (debased) drives good money out of circulation.
"In the year 1809, the new silver coin, which was 10 percent worse in alloy than the coin of 1802, 3, 4 and 5 had replaced it," he wrote.
The exchange rate with Indian money - the Madras Star Pagoda - had fallen to 63 Ceylon fanams from 60 in the process.
Even then with just two million people one of Sri Lanka's largest imports was rice. A top export was high value arecanut.
By 1814 the exchange rate had fallen to 80 fanams per Star Pagoda. But the self-denial that it was a paper fiat monetary phenomenon was total.
"An opinion has been entertained, that the disordered and alarming state of the exchange rate might have originated from a superabundance of paper money in circulation," Bertolacci wrote.
"But I am not inclined to adopt this opinion…"
Refusing to admit that inflation and balance of payments crises are created by money printing is normal. To find 'supply side' solutions to inflation instead of stopping printing is also normal.
A recent LBO story (Rate Targeting) said the central bank was looking to supply side interventions to contain inflation. It is not only the Central Bank of Sri Lanka that looked for 'supply side interventions'. So did Bertolacci two centuries ago.
With bills coming into circulation inflation was rife. Staples such as rice are the first to be hit from money printing.
Rice which was selling for 1 fanam and quarter a measure (a measures is slightly less than a kilo) had risen to two fanams, wrote Bertolacci.
"The same sort of cloth that was then sold for six rix-dollars the piece, will now fetch ten," he added.
From 1805 to 1812 Bertolacci says the Ceylon currency has depreciated 80 percent, and is a "source of great distress and misery there to every class of society; and it well deserve the attention of His Majesty's Government, to remedy so great an evil."
Droughts - which are common even now - had aggravated the problem. But when a drought hit with a balance of payments crisis, it was a disaster of the greatest proportions.
Of course it was the poor who paid the biggest price with malnutrition.
"It was indeed deplorable at that time to see the numerous Children of the Ceylonese families reduced and emaciated for want of food…," lamented Bertolacci.
The monthly wages of a common servant had been 10 rix dollars and no change has taken place, he said. Wage earners as usual paid the price for government greed and currency depreciation.
Under British rule the population was rising rapidly due to vaccination especially for small pox. At that time Bertolacci estimated the population at around two million. Before vaccination small pox had spread like wildfire from time to time depopulating vast areas.
Because small pox outbreaks came from India, when the coastal regions were immunized it helped the Kandyan region as well.
Sri Lanka at the time exported arecanut and the main imports were cloth and rice from Malabar, Coromendel and Bengal.
In 1806, Sri Lanka had exported goods to the value of 2.7 million rix dollars, imported 2.2 million dollars worth rice and 861,381 dollars worth cloth.
Bertolacci suggested imposing a 'moderate duty upon importation," of rice and to help build capital among farmers to cultivate more land.
Nothing much has changed. Now the population of the country is not two million but 20 million. And the duties are far from moderate. Alternative carbohydrates like wheat and potatoes are also blocked with high taxes.
Rice Only Fascism
Marginal rice farmers, whose inefficiency had pushed yields down is now a burden to the poor. The autarky had also spread to maize in recent years. With Sri Lanka's population ten times as it was when the British came, domestic production is already higher.
But now there is a 'rice only' policy in place, where people are forced to eat the grain in a Nazi-type social engineering exercise and propaganda and not just through 'a moderate tax'. People are also cornered through taxes on close substitutes.
The 'rice only' artists are pushing a policy just like the 'Sinhala only' proponents did decades ago. Such tendencies like the anti-Jewish 'Aryan' or 'master race' superiority complexes dehumanize people and take away their liberties.
The mercilessly vicious fascist desires of the 'rice only' artists were starkly exposed when they proposed forcing sick patients in state hospitals (Sick Proposal) to eat rice only.
Sri Lanka's current rulers should take note of this trend carefully, because the country need not go down this path, which has failed time and time again both in Sri Lanka and elsewhere. It is also fundamentally fascist in nature.
Not surprisingly, in the 20th century, a country most noted for such policies was pre-war Germany.
"Like the military and political rearmament and mobilization of our people, there must also be an economic one, and this must be effected in the same tempo, with the same determination, and, if need be, with the same ruthlessness as well," wrote Hitler in a secret memo on autarky in 1936.
"In future the interests of individual gentlemen can no longer be allowed to play any part in these matters.
"There is only one interest and that is the interest of the nation, and only one single view, which is that Germany must be brought politically and economically into a state of self-sufficiency."
Hitler pushed food prices up, and also wanted to synthesize raw materials. He was in fact voted into power by farmers because he promised higher food prices, after the great depression lowered prices.
But Germany ended up importing more raw materials because of deficit spending. Despite having a gold standard Hitler's economy minister Hjalmar Schacht (a former central bank governor) effectively printed money for deficit spending through a mechanism called the 'Mefo bill'.
Though spending caused employment to go up in Germany, it also created inflation and price controls were brought in. The so-called 'military Keynesianism' was transitory and proved to be unsustainable. It created more chaos eventually.
Attempts to keep farm prices up had been promoted earlier by mercantilist economists even in free countries. The struggle for free trade in Britain is also rooted to agricultural protection.
That Bertolacci in Ceylon proposed rice import duties should not be a surprise. It was in 1815 that Britain brought in the infamous 'corn laws' (Importation Act 1815) to protect farmers and landowners.
But for several decades the British poor managed despite the corn laws because there were cheap potatoes, which Sri Lanka's poor do not have now.
In 1846 amid the Irish potato blight which hit potato supplies, Britain's Prime Minister Robert Peel set the wheels in motion to repeal the corn laws. He was forced to resign.
But the corn laws were repealed shortly after.
While US farmers for example get subsidies they also produce some of the cheapest food in the world. But farmers in Sri Lanka get production subsidies and produce some of the most expensive food in the world. They get benefits from both sides.
High food prices makes people poor especially factory workers and lowers their living standards.
Richard Cobden, of the British 'Anti-Corn law League' who favored free trade, immortalized this phenomenon when he related what a worker had told him.
"When provisions are high, the people have so much to pay for them that they have little or nothing left to buy clothes with; and when they have little to buy clothes with, there are few clothes sold;...
"But when, as now, the working man has the said 25s. left in his pocket, he buys more clothing with it (ay, and other articles of comfort too), and that increases the demand for them…"