Thoughtful regulation, not price controls for rice

Sri Lanka’s history with price controls on essential commodities has been a turbulent one, marked by a repeated pattern of failure. One of the most infamous instances occurred in 1994, when the Government of Chandrika Kumaratunga promised to fix the price of bread at Rs. 3.10. While this was intended to shield the public from the rising cost of living, the reality was starkly different. 

Within months, the price controls collapsed as supply chains faltered, and the price of bread skyrocketed. This is just one example of how price controls, while well-intentioned, often fall short when they clash with the economic forces of supply and demand.

The fundamental issue with price controls is that they fail to account for the underlying mechanisms of the market. Prices are not arbitrary; they are determined by the complex interplay of supply, demand, and production costs. When the Government steps in to set prices without considering these factors, it can create artificial shortages or surpluses, undermining both the producers and consumers it seeks to protect. Sri Lanka’s experience with price controls over the years has proven that Government-mandated prices do not align with the realities of a free market, often leading to disastrous consequences.

However, the failure of price controls does not mean that regulation is unnecessary. In fact, the Sri Lankan economy, especially in sectors like rice, is plagued by the influence of cartels, monopolies, and crony capitalism. The rising prices of essential commodities, including rice, are often driven not by natural market forces but by a handful of powerful players who control the supply and dictate prices. This market manipulation has left consumers at the mercy of a few, often with devastating consequences for the average citizen.

It is clear that regulation is needed to create a more level playing field. But regulation should not be about arbitrarily setting prices based on political promises or short-term populism. Rather, it should focus on creating transparency, ensuring fair competition, and dismantling the monopolistic structures that allow these cartels to thrive. Regulations should aim to empower consumers and small producers, not disrupt the delicate balance of supply and demand.

The Government’s role should be to foster a competitive marketplace where no single player can manipulate prices at the expense of others. This could involve measures such as encouraging the entry of new players, ensuring better price transparency, and creating an environment where farmers and small-scale traders can access the markets fairly. At the same time, laws should be put in place to combat price-fixing and market manipulation, making sure that no one can artificially inflate prices for their own gain.

To regulate without distorting the market, the Government must rely on expert analysis and data-driven approaches. For example, instead of arbitrarily fixing the price of rice, the Government could monitor the market for signs of undue price hikes and step in only when clear evidence of cartel behaviour or unfair pricing emerges. This would allow the forces of supply and demand to play out naturally while ensuring that those who manipulate the market for personal gain are held accountable.

Sri Lanka must move beyond the failed policies of price controls and focus on creating a fair and competitive marketplace. Price controls have consistently failed in the past because they ignore the realities of the market. Instead, the government must regulate in a way that curbs monopolistic behaviour, ensures transparency, and promotes healthy competition.