Rs.1 b to fix paddy market

• Small- and medium-scale rice millers to get funds to purchase paddy from farmers 
• Harsha says effort to reduce oligopoly powers of large-scale millers 
• Insists Govt. attempts to fix broken market justified 
• Funds aimed at stabilising prices to assist farmer and consumer 
• Millers hail effort, believe chance to rebalance market, repay Rs. 7 billion in loans  
  
   

By Uditha Jayasinghe 

Taking a stab at controlling monopolies and re-establish competition in paddy markets, the Government yesterday announced it will disburse Rs. 1 billion to small- and medium-scale mill owners to purchase paddy, mill it and resell to cooperative networks countrywide.  Non-Cabinet Minister of Economic Reform and Public Distribution Dr. Harsha de Silva told reporters that concerns had been raised about the dominance of large-scale paddy millers, who purchase paddy at low rates, mill it, warehouse it in large quantities, and release it to the market at much higher prices.  

“The President raised concerns about paddy millers gaining exorbitant profits, and wanted us to address this problem. Public Distribution was a ministry we established to deal with problems like this, where market discrepancies are creating issues. This decision is the result of six months of consultations with all stakeholders, including millers, farmers, and banks. We even had talks with Dudley Sirisena,” he said. 

Following discussions with over 300 small- and medium-scale mill owners, the Government decided to temporarily intervene in the market by releasing Rs. 1 billion from the Treasury to support the purchase of about 20 metric tonnes of rice. President Maithripala Sirisena had presented the Cabinet paper that had received approval on Tuesday. Currently, about 40% of the paddy output is purchased by large-scale millers, and about 10% by the Government. With the Rs. 1 billion, small- and medium-scale paddy millers plan to purchase about 20% of the harvest. 

Under the new scheme, which is implemented with the participation of the Sri Lanka Rice Producers Cooperative Limited (Rice-Corp Sri Lanka), most of the small- and medium-scale millers have been organised into cooperatives spread out across eight key Districts. These cooperatives will be given funds by the Government and they will release money under agreement to the millers who are their members. The millers will then use the funds to purchase paddy from the farmers, mill it and resell it to the cooperatives. In the last step, the cooperatives will sell the rice to consumers. The process will be strictly monitored via an IT platform, which would also have Agriculture Ministry oversight.    

“When markets fail, Governments intervene with the intention of fixing market failures. What happens then, is sometimes Government failure happens, which is worse than market failure. What we are trying to do is make sure we put in place a set of policies where we try to reactivate competition in the market, so that we can rectify market failure without creating a Government failure. The reason there is an oligopoly structure in the paddy milling market is because competition was killed off over a period of years. We are trying to resuscitate the small- and medium-scale mill owners, so that will help both the farmer and the consumer,” Dr. de Silva said. He insisted that the latest measure was not an interventionist attempt. 

According to Rice-Crop Sri Lanka Chairman Muditha Perera, many small- and medium-scale millers dropped out of the industry since 2000 due to weather problems, price controls, and ad-hoc rice imports. The depletion of the small- and medium-scale millers allowed large-scale millers to consolidate their presence in the market, thereby leading to a situation where the large-scale millers could artificially hike up prices. 

“When small- and medium-scale millers are involved there is more competition. This Rs. 1 billion gives us the chance to restart our businesses. We expect this effort to stabilise prices and perhaps provide a price decrease to the consumer. Prices could drop by about Rs. 10 and remain around the Rs. 80-Rs. 90 per kilo range,” Perera said. 

Perera stated that many of the millers went bankrupt as they were unable to repay bank loans, and efforts were being made to appeal to banks to restructure those loans, so they could be repaid over a longer period of time. Perera estimated the millers' companies had accumulated Rs. 7 billion in outstanding loans.    

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