Advocata says price controls on water bottles carry serious unintended consequences

• Warns price controls could lower product quality
• Urges govt. not to intervene unnecessarily  

The recent price controls slapped on bottled water could lower the quality of the water being sold at the market place and limit the choice the customers previously had, Advocata, a Colombo-based think tank that promotes free market ideas said in a statement. 

In an extraordinary gazette notification released earlier this week, the Sri Lanka Consumer Affairs Authority (CAA) imposed price controls on bottled water, to be enforced starting from October 5, 2018.

Advocata warned that this decision will introduce distortion into the market, possibly resulting in lower quality or shortages. 

“As more than 120 companies battle for a foothold in Sri Lanka’s competitive bottled drinking water market, worries over unsafe and low quality products is concerning,” Advocata said. 

The maximum retail prices enforced through this gazette vary between Rs.26 and Rs.170 depending on the size of the bottle. 

According to a basic survey carried out by Advocata, market prices of bottled water for a 500 ml bottle, prior to the enforcement of the price control varied between Rs.45 and Rs.85.

“In principle, the action of setting maximum prices on goods and services is known as a price ceiling. These are meant to protect consumers from being exploited.  Yet the reality may be different.  

“Coupled with loose enforcement, consumer price controls in Sri Lanka have skewed the market towards a preference for lower quality products. The price controls on water bottles, will likely to do the same,” Advocata said.

In Sri Lanka, bottled water is regulated by the Ministry of Health through the Food (Bottled or Packaged Water) Regulations, 2005 framed under the Food Act No. 26 of 1980. 

There had not been major health and quality related concerns until 2016, where a CAA directive indicated that plastic mineral water bottling standards were enforced starting September 1, 2016 following the authority detecting several brands using low quality plastic bottles. 

“The likely result of the introduction of this new price control—limiting the sale of a 500ml water bottle to Rs.35— is that producers have to now cut down on production costs, to reduce the final cost per bottle. Low production cost lead to the sourcing of low quality raw materials, in this case, water and plastic,” Advocata said. 
It is so far unclear whether the price controls also apply to glass bottles, which may be priced out of the market.  

Advocata noted that according to publication slated to be released this week by the think titled ‘Price Controls in Sri Lanka; Political Theatre,’ price controls do not serve the intended purpose. 

“In responding to price controls, the usual case is that producers would resort to producing low quality products in order to remain within the vicinity of the controlled price” said Ravi Ratnasabapathy, Resident Advocata Fellow and co-author of ‘Price Controls in Sri Lanka’ report. 

Advocata urged the government to engage relevant stakeholders and reverse the decision to unnecessarily intervene in an already competitive market.