Rice conundrum

Soaring prices of rice – the staple food of the islanders – have been dominating the news headlines over the last two months. It has become a political headache to the newly elected NPP Government. Every year, with Yala season ending in August, from October to January, a cartel of rice millers is accused of habitually hiding rice stocks in a manipulative manner to hike up the price of rice.

Given the gravity of the crisis, the Cabinet of Ministers few days ago approved the proposal to allow the importation of rice without permits until 20 December in order to address the current shortage of the commodity in the market. Last August, the Department of Agriculture declared that previous Yala season produced a record paddy harvest of 2.6 million metric tons, which was considered as sufficient to produce the country’s annual rice requirement. Furthermore, last Maha season generated a paddy harvest of 3.2 million metric tons, and the then Agriculture Minister Mahinda Amaraweera proudly claimed that there was no need to import rice during this year due to the availability of ample stocks of paddy within the country.

For a long period of time, analysts have pointed out that an oligopoly, which acts in the form of a cartel, exists within the sphere of rice supply in the country, thus, causing hardships to the populace. Opposition politicians and consumer right activists are directing the blame towards large-scale rice millers for the current scarcity of rice in the market while accusing them of hoarding the stocks of the critical food commodity in their storage facilities to artificially inflate rice prices and thereby gain supernormal profits.

Meanwhile, several small and medium-scale rice millers were complaining that the outdated Gazette issued by the Gotabaya Rajapaksa administration on 2 May 2022, which was in effect until last Saturday, was the prime reason behind the shortage of rice in the market. The millers were arguing that it was not possible to supply rice varieties at the Maximum Retail Price (MRP) levels that were stipulated about 30 months ago as production and distribution costs had increased considerably over the last two years. In response to the objection of millers about the rationality of the stipulated prices of the earlier gazette, the Government decided to revise the MRP of a number of rice varieties last Saturday, following a discussion between a group of rice millers and President Dissanayake at the Presidential Secretariat.

However, as stated by this column few weeks ago, the solution to the anomaly in the price of the staple food needs to be implemented within the mechanism of market forces itself instead of resorting to tried and tested failures like Government-mandated price controls that would only make the matters worse. When the Government imposes an MRP, especially if it does not take into account the actual costs of production as well as distribution for a particular consumer item, suppliers and producers refrain from supplying it to the market, causing unnecessary complications to consumers apart from producers. Also, black market price, which is a natural by-product of maximum price controls, further aggravates the plight of consumers.

The NPP – in particular their ideological parent the JVP – have always expressed fondness towards market-distorting price control mechanisms, driven by their past ideological leanings towards Marxism. Perhaps, the former Marxists would gradually convert themselves to adherents of market economic principles as they gain experience on economic policy matters. People might recall that when the Wickremesinghe administration removed price controls on eggs, the supply of the commodity to the market was restored and today eggs are available in the country at reasonably affordable prices.

The Government needs to find solutions within the market forces itself to dismantle the dominance of the politically powerful oligopoly of large-scale rice millers, ideally by enabling the structure of rice supply to become more competitive as interfering with market forces has always ended up in failure as vindicated by empirical evidence.