Following the high prices of food commodities that prevailed throughout the year despite ongoing stabilisation measures, the outlook for Sri Lanka’s food commodity prices in 2025 remains up in the air, with extreme weather, rising geopolitical tensions, sudden policy changes, and other factors all likely to have a potential impact.
Nevertheless, according to the latest World Bank Commodity Markets Outlook, following an expected 9% decline in 2024, the World Bank’s food price index is projected to ease by an additional 4% in 2025 before stabilising in 2026. However, it notes that this would still leave food prices nearly 25% above the average level from 2015 through 2019.
The year that was
According to the Advocata Institute’s Bath Curry Indicator (BCI), which tracks the prices of common food items that go into rice packets in Sri Lanka and provides an indication of how much prices have changed over time, food commodity prices have been on a downward trend post-2022.
The BCI, which stood at a peak of Rs. 2,538 in January, had dropped to Rs. 2,040 by September as of the latest update. The lowest BCI value for the year thus far has been for April at Rs. 1,874.
Advocata Institute CEO Dhananath Fernando told The Sunday Morning that the indicator showed food commodity prices at a stable level towards the end of the year.
“From July onwards, prices have more or less been stable up to September. This is more a monetary phenomenon; while there can be price increases (such as in rice, eggs, and coconuts) due to various reasons such as supply-side issues, when the monetary side is stable, the overall price levels will remain as they are. At present, prices are somewhat stable and at a fairly low range compared to June.”
Addressing the high BCI values for January and February, he said: “We did a lot of money printing in 2022, which took some time to adjust. The impact of printing money in 2021-’22 came after about 6-12 months,” he explained, noting that it was a case of “too much money chasing too little goods”.
Speaking to The Sunday Morning, Sri Lanka Retailers’ Association (SLRA) President Charitha Subasinghe outlined the movement of food prices over the year, noting a trend towards lower prices.
“When we look at the pricing over the past few months and the actual movement of products, there was a deflation of about 6% in November when compared against March,” he noted, attributing this to several factors. “With the rupee appreciating, most suppliers also reduced prices, as they were looking to pass the benefits to the consumer. Also, one area that positively impacted inflation was the movement of fresh produce.”
An unpredictable landscape vs. aspirations of stability
Meanwhile, speaking to The Sunday Morning, University of Peradeniya (UOP) Department of Economics and Statistics Professor M.B. Ranathilaka, while noting that there was not adequate evidence to predict a definite trajectory for food prices in 2025, pointed out that there were certain factors that could influence prices.
“Commodity prices in Sri Lanka are often decided based on the value of the dollar. This is primarily due to the fact that any locally manufactured product includes a large component of imported inputs.
“For instance, even with rice, vegetables, chicken, or fish, there are inputs. Although fish is obtained from the ocean, inputs such as diesel or kerosene can be expensive. Therefore, food prices are decided based on the value of the inputs in the world market or on whether the value of the dollar is increasing,” he noted.
Pointing out that imported goods faced a similar situation, Prof. Ranathilaka said: “Sri Lanka consumes a massive quantity of imported items daily, from rice to eggs. Therefore, the value of the dollar will decide the prices in this instance.”
However, he pointed out that this situation could be impacted by a sudden increase in local production and productivity, which could lead to lower prices of locally manufactured products. Nevertheless, this too depends on whether current conditions are maintained through various policy decisions.
“Based on the present situation alone, it can be said that prices are likely to remain stable. However, there can be developments in food commodity prices should there be a dollar shortage or if extraordinary inflationary situations are created in the international market,” Prof. Ranathilaka noted.
Against this backdrop, Subasinghe expressed expectations of stability in food prices: “Looking towards next year, I don’t see a major reason why there should be a price increase from where we are today. What will have an impact is how weather conditions will affect fresh produce. If weather conditions remain stable without extreme droughts or rains, the prices of fresh produce should also remain at a reasonable figure. If so, I don’t believe there will be a significant inflationary impact on food.”
Similarly, commenting on the possibilities for 2025 in terms of food prices, Fernando said: “Prices should remain stable if there are no supply-side issues. However, if the Central Bank’s monetary policy changes and if there is inflation, then price increases are likely. However, we cannot predict anything because things will depend on the Central Bank’s policy.”
He noted that in terms of impacts of global events, Donald Trump’s presidency from January could be a factor, adding: “We do not know how things will change based on Trump’s tariff policy and such events.”
Further, he pointed out the possibility of other occurrences, such as climate events, the Russian-Ukrainian war and Trump’s response to it, the response of the Middle Eastern region, etc.
Importance of Govt. policies
Accordingly, Prof. Ranathilaka stressed that the Government should pay attention to such volatilities in order to manage the situation.
“On one hand, the Government should have the ability to anticipate such increases in the international market. On the other hand, it should focus on improving domestic food production, since this is a long-term factor. Food prices don’t undergo changes in a day or two – they require a minimum of three or four months.”
He further pointed out that since Sri Lanka had to repay its debts in the upcoming period, it was crucial to ensure the stability of the rupee by implementing proper fiscal policies.
“Given the existing situation, there is a likelihood of inflation remaining stable. The policy decisions that the incumbent Government takes will have an impact in about five or six months. For instance, the availability of vegetables, coconuts, rice, etc. will be decided based on the decisions taken by the Government now. Moreover, there can be external impacts such as natural disasters,” he said.
“On the other hand, there are man-made issues such as rice price increases,” he added, pointing out that the Government should accurately analyse why locally produced items such as rice were unavailable in the market and provide tailored solutions.
Meanwhile, speaking to The Sunday Morning, Deputy Minister of Trade R.M. Jayawardana said that while the Government intended to take steps to ease prices of food commodities in the new year, a final decision in this regard was yet to be taken.
“We do have an idea of stabilising the prices of essential goods in the country. In order to reach a final consensus on action to be taken for this, we need to have discussions at the ministry level and with other relevant institutions. There are various ideas coming in, but we are yet to make a final decision on what will be done.”
Global forecast
Meanwhile, the World Bank anticipates that declining food commodity prices are likely to bolster food affordability in Emerging Market and Developing Economies (EMDEs), helping to alleviate systemic food insecurity in some contexts.
Moreover, it points out that following an expected 8% increase in 2024, rice prices are forecast to fall by 11% in 2025 and 2% in 2026, as global output reaches a new high in the 2024-’25 season and India eases its rice export restrictions. It therefore forecasts improved yields and higher inventories due to ample monsoon rains in India and further rainfall due to weather conditions.
“However, the relationship between global commodity prices and food insecurity is increasingly complicated by localised food crises related to conflicts, natural disasters, and idiosyncratic economic shocks,” it notes.
Accordingly, in settings where armed conflicts, extreme weather events, and economic shocks have eroded local access to food in many vulnerable countries, weak local market functioning, security issues, and governance fragilities may limit the extent to which lower global food prices reach households.