Rice mess continues

Wednesday, 18 December 2024 00:00 -     - {{hitsCtrl.values.hits}}

The newly elected NPP Government has gone into a difficult start with its handling of the shortage of rice causing confusion and uncertainty to market participants instead of providing solutions. The administration’s lack of experience in governance as well as limited/poor understanding of functioning of market systems are quite visible from the manner in which it tried to resolve the issue.

As part of solving the dearth of the critical food commodity in the market, a revised gazette was issued by the Consumer Affairs Authority (CAA), announcing the new maximum retail and wholesale prices for a number of rice varieties, subsequent to the highly publicised discussion between a group of rice millers and President Anura Kumara Dissanayake at the Presidential Secretariat. However, the millers complain the official document had not been drafted properly by the CAA officials. Ideally, three sets of maximum price limits – producer price, wholesale price, retail price – should have been included in the Government publication but the gazette contains maximum prices only for wholesale and retail prices.

Also, retail traders complain that Nadu Rice – the most sought-after rice variety by islanders – cannot be sold at the stipulated Maximum Retail Price (MRP) of Rs. 230 without incurring losses after buying the rice variety at the wholesale price of Rs. 225. What was the methodology that was adopted in determining the MRP for Nadu Rice? Was an objective formula used in arriving at the said MRP? It is obvious that maximum prices for Nadu Rice were decided arbitrarily by the President and the relevant officials without properly taking into account the actual costs of production, distribution, and profit margins of traders/producers. 

As pointed out by this column last week, when the Government imposes a maximum price level without taking into account the actual costs of production and distribution for a particular consumer item, traders and producers refrain from supplying the product, resulting in the commodity disappearing from the market while causing unnecessary hardships to consumers.

Due to the irrationality of the imposed prices, the varieties of Nadu and Kekulu have become scarce in the market. As a minimum fine of Rs. 100,000 up to a maximum fine of Rs. 500,000 can be imposed on traders if rice is sold at prices exceeding the ranges imposed by the CAA, businesses are scared of selling the commodity openly. Even as per the statistics of the Central Bank, a kilogram of Nadu was trading at Rs. 238 during last week (the MRP is Rs. 230/kg) at Pettah Market, reflecting the unfeasibility of the Government’s gazetted prices. 

Meanwhile, Small and Medium-Scale Rice Mill Owners’ Association President B.K. Ranjith had told the media that it was impossible to sell imported rice at the MRP of Rs. 220/kg outside Colombo due to transportation costs. Already, concerns have been expressed by traders over the feasibility of selling imported rice at the stipulated prices due to the custom import duty of Rs. 65/kg. Further, it was reported that Weevils had been detected in 50,000 kg of imported rice while deficiencies in respect of product information labels had been found in another 25,000 kg of the imported commodity. One of the natural consequences of maximum price controls is traders resorting to supply low-quality, substandard products to the detriment of consumers. 

Policymakers need to realise that maximum price controls, especially when the particular price level has been determined in a flawed manner without taking market dynamics into consideration, create adverse consequences in particular to consumers. The temptation to resort to tried and tested failures such as Government-mandated price controls would only make matters worse as evidenced by the agony felt during the Gotabaya Rajapaksa presidency. Earlier it is understood by the inexperienced political dispensation, which is still in the L-board stage, better for masses. 

 

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