China’s blacklisting strategy in Sri Lanka

The Sri Lankan government’s Vistas of Prosperity and Splendor Agenda, aiming to improve the Sri Lankan peoples’ health, seeks to phase out the use of fertilizers and agrochemicals in domestic crop cultivation. The framework promotes organic agriculture, organic fertilizers, organic food consumption, and the export of organic food and agricultural products.

The government subsidizes rice production to ensure rice self-sufficiency (a national food security objective). Up to now, it was providing local farmers with free rice, imported chemical fertilizer. For other field crops, the government provides farmers with fertilizers at deeply discounted cost.

Sri Lanka is encountering difficulties financing its costly fertilizer subsidy program. Facing increasing difficulties managing its balance of payments, Sri Lanka may potentially be limiting and banning chemical fertilizer and agrochemicals usage to control hard currency outflows.

In 2020, Sri Lankan imports (both state and private sector) of foreign fertilizers reached $259 million, representing 1.6 percent of the country’s total imports by value. Sources indicate that the 2021 import bill could potentially total in the range of $300-$400 million given current international prices. By limiting and/or banning costly foreign exchange draining fertilizer and agrochemical imports, the Sri Lankan government aims to generate significant import cost savings.

Sri Lankan sources indicate that the government aims to produce one million tons of organic fertilizers per annum. Nonetheless, Sri Lanka has yet to increase its own organic fertilizer production capabilities. In the short term, it does not have the capability to expand organic fertilizer production capacity sufficiently to meet current fertilizer use requirements.

Decision to Import

The decision led to protests by farmers, who complained they didn’t have time to make a switch, and soaring food prices. Tens of thousands of farmers in Sri Lanka have been involved in daily protests since the beginning of September, 2020 to demand fertilizer be provided for paddy cultivation during the Maha (north-east monsoon) season. Peasants growing paddy, vegetable and other commercial crops have held demonstrations in paddy fields, farmland and in the cities. The small farmers have even threatened to abandon all cultivation if they are not given fertilizer. But it is alleged that when plantation companies warned that this would drastically impact tea production, the government quickly allowed imported fertilizers for that industry. Sri Lanka hopes to earn $1.4 billion from tea exports this year.

Meanwhile, the prices of essential food items like sugar, rice and onions soared over twice, with sugar even reaching record Rs 200/kg; and kerosene oil and cooking gas prices surged. There were also fears of a hit to production of other crucial export crops like cinnamon, pepper, rubber, cardamom, cloves, nutmeg, betel leaves, cocoa, and vanilla.

The country was subsequently forced to allow imports of organic fertilizers as it currently does not have the capacity to produce as much organic fertilizer as its agricultural sector requires.

It was set to import 99,000 metric tons of organic fertilizer at a cost of $63 million from Qingdao Seawin Biotech Group Co Ltd, China. However, the consignment was rejected after an analysis reportedly found it to be “tainted.” The Sri Lankan agriculture ministry selected China’s Qingdao Seawin Biotech Group Co. Ltd through open bidding to supply organic fertilizer.

Two samples brought to the country and tested by the Sri Lanka Standard Institutions and National Plant Quarantine Service and Sri Lanka Atomic Energy Board were found to have microorganisms, pathogens, and diseases harmful to the soil, plants, and humans.

Sri Lankan scientists warned that China’s organic fertilizer would be an agricultural disaster as the samples were found to be infected with Erwinia, a notorious plant pathogen that causes severe post-harvest losses in crops. “It also affects root crops that are economically important and are grown in large amounts. Effect of this pathogen could be found even during the post-harvest,” Devika de Costa, professor of plant protection attached to the University of Peradeniya, told the media.

In view of the criticism levelled against the Chinese fertilizer, State-owned Sri Lanka Fertilizer Company had secured a court order to block the payment of $4.9 million to Qingdao Seawin Biotech over the shipment of fertilizer which was found to be contaminated. The order prevented the People’s Bank of Sri Lanka from making payments under a Letter of Credit opened in favor of the Chinese company. The bank did not make payment for the fertilizer exported by China under a contract between the two parties. This led to the Chinese embassy warning all Chinese enterprises against accepting any letter of credit from the People’s Bank and blacklisting it. The Bank had only honored an order issued by the Commercial High Court preventing them from processing the payment to Qingdao Seawin Biotech Group Co., Ltd. for a fertilizer shipment that did not meet local specifications.

The move of the Embassy was condemned in no uncertain terms in the following manner: “Isn’t the move of the Chinese Embassy to blacklist such a reputed local bank for honoring an order issued by a court of law, an insult to not only the People’s bank but also the general public of Sri Lanka”? It was also pointed out that although China Blacklisted the Peoples Bank, Sri Lankan authorities have still not been able to blacklist the Chinese company (Qingdao Seawin Biotech Group Co., Ltd.) that sent fertilizer contaminated with bacteria to Sri Lanka and the people of this country are extremely concerned as one of their internationally reputed local state Bank has been scorned by a foreign entity.

Implications

Blacklisting is the action of a group or authority, compiling a blacklist of people, countries or other entities to be avoided or distrusted as being deemed unacceptable to those making the list. If someone is on a blacklist, they are seen by a government or other organization as being one of a number of people who cannot be trusted or who have done something wrong. The negative effects of being blacklisted can be quite considerable, with huge inconvenience being the least of them. More severe effects include loss of credibility and goodwill, a decline in business and clients, and financial hardship. Aware of these consequences, the Bank informed the Embassy and by extension the business community that the temporary delay in processing the said payment pertaining to the LC was solely due to the bank’s obligation to be bound by the legal directions of the country as a responsible corporate citizen and once the legal barriers in effect were removed, the LC payment would be effected promptly as per the usual trade practices.

Pressure Tactics

Apart from blacklisting the reputed Sri Lankan state bank, Chinese fertilizer company has now demanded USD 8 million from Sri Lankan authorities to be paid otherwise legal action would follow. The company has asserted that it has lost several millions of USD and continues to suffer further loss of reputation and goodwill in international business.

A global think tank Policy Research Group (POREG) stated that after the Sri Lankan government rejected an order of organic fertilizer from a Chinese company, Beijing has been putting pressure on Colombo to accept its consignment.

Policy Research Group said in two samples, the Sri Lanka Standard Institutions and Sri Lanka Atomic Energy Board found micro-organisms, pathogens, and diseases harmful to the soil, plants, and humans. In fact, Sri Lankan scientists put their foot down, warning that China’s organic fertilizer would be an agricultural disaster as the samples were found to be infected with Erwinia, a notorious plant pathogen that causes severe post-harvest losses in crops, the think tank said.

It further stated that from all accounts China is not willing to accept that Sri Lanka has disallowed a consignment of organic fertilizer exported by a Chinese company. Beijing is said to be using pressure tactics to have its way with Colombo. Naturally, all eyes are on the Rajapaksa government to see how well it handles the fertilizer fiasco by friendly China, the think tank added.

In a recent development, India has sent 100,000 kg of Nano Nitrogen fertilizer to Sri Lanka in the backdrop of the latter barring the use of contaminated Chinese fertilizers. The supplies were requested by the Sri Lankan Government. A release by the Indian High Commission in Colombo said, “The deployment was essentially to support the Government of Sri Lanka’s initiative towards Organic farming and to expedite availability of Nano Nitrogen Fertilizer to the Sri Lankan farmers”. 

2 COMMENTS

  1. Sri Lankan properties are sold by rulers Irrational quarentine rules imposed where rulers go without masks Prices are rocketing adopting wrong procudures. Chemical fertilizer banned saying to prevent kidney disease. I observe 99,000 metric tonnes of Chinese fertilizer is a coup to destroy environment

  2. This is a bias article. The fact : SL Min. of Agri. refused to give a chance to the Chinese company to defend itself against the allegation. The Chinese co. requested for a 3rd party test from world’s no.1 tester, SGS Swiss and challenged NPQSL that if result from SGS was similar to NPQSL, the fertilizer would be sent back to China without any cent claimed to SL. But NPQSL insisted on their test above any other tests and all SL’s medias slandered the Chinese fertilizer as harmful, toxic, contaminated, dangerous, worse than nuclear bomb, etc., without giving them a chance to defend against or clarify. Then regarding the blacklist, the fertilizers were sent because LC was issued. If SL importer was not sure, why issued LC? When LC is issued, any problem would become importer’s problem, like import permit has nothing to do with seller. So conclusion : SL slandered China + created a loss for them + not giving any chance for them to defend against. What did SL expect China to respond? Accept being slandered and swallow the loss without fighting back???

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