• URPA President Kusumitha Mudith Perera notes that the focus on higher-profit rice types, like Keeri Samba, has led to a decline in the overall yield per ha, thus affecting supply stability

Over the past few weeks, the country's rice shortage and pricing issue has sparked great public debate. The main problem allegedly centres on the Government’s outdated control prices for rice, which have not been revised in over two years. Initially set in May 2022, the prices have been established through a gazette notification during former President Gotabaya Rajapaksa's administration. Since then, the cost of producing rice has increased significantly, but the control prices remain the same. As a result, rice is being sold well above the control price, eventually causing financial strain on the consumers.

During an interview with The Daily Morning, the United Rice Producers Association (URPA) President Kusumitha Mudith Perera said that Sri Lanka’s rice production this year has exceeded national requirements, so the supply is there. According to him, the problem is caused by mismatches between production costs, market-related needs, and the enforced prices. Both the Government and the regulatory agencies, especially the Consumer Affairs Authority (CAA), have faced criticism for not enforcing price controls effectively.

Following are excerpts from the interview:

What’s the situation behind the current rice-related issue? How did it start, and what are the key problems?

The current rice price issue in Sri Lanka is due to outdated Government policies on control prices. In May, 2022, during the tenure of President Rajapaksa, a gazette notification issued by the CAA established control prices for rice. Although over two years have passed, the Government is still trying to maintain the same prices without adjusting for inflation or changes in production costs. As a result, there is now a huge gap between what it costs rice producers to produce rice and what the Government allows them to sell it for. This is the main reason why rice prices are going up. It’s not due to a shortage of paddy or rice itself, but rather the problem of outdated pricing policies that don’t suit today’s market.

How much rice does Sri Lanka actually need each year? Is there enough rice being produced to meet the demand?

Sri Lanka’s annual rice demand is about 2.4 million metric tonnes (MT), which works out to around 200,000 MT being needed each month. To meet this demand, about four million MT of rice must be produced yearly. This year, nearly 4.5 million MT of paddy have been produced, which is more than enough to cover the country’s needs. So, in terms of the supply, there is no actual shortage of rice. The issue lies with pricing and the Government’s failure to update control prices in line with current costs and market realities.

What factors have contributed to this rice pricing issue beyond the outdated price controls?

The main regulatory body responsible for setting prices on goods is the CAA. While they have the authority to set control prices, they don’t consider the different standards or quality levels of rice when setting these prices. In Sri Lanka, rice types can vary in quality, with some meeting standards set by the Sri Lanka Standards Institute (SLSI) or even international organisations like the International Organisation for Standardisation (ISO). However, the CAA just sets a general control price for ‘rice’ without considering these variations in quality. This approach means that a low-quality and high-quality rice might be expected to sell at the same price, which doesn’t make sense for the producers. Additionally, the current gazette notification on rice prices doesn’t have an expiration date, meaning that prices haven’t been reviewed or updated for over two years.

Is there a solution that could resolve this rice pricing problem? What practical steps can be taken?

To tackle this issue, it’s important to regularly review and adjust the cost of rice production and farming at least every six months. This requires a systematic, scientific calculation to account for inflation, labour, transportation, and other costs. Unfortunately, this type of regular recalculation isn’t being done in Sri Lanka. If current regulations make it challenging to carry out these regular reviews, the necessary legal changes should be introduced. Additionally, control prices for rice should be specific to the quality and standards of rice rather than having a single, ‘one size fits all’ price.

What changes have there been recently in the types of rice grown in Sri Lanka? How does that affect the market?

In recent years, Sri Lanka’s rice market has been dominated by about 10-12 large-scale rice manufacturing companies, which control nearly 50% of the market. These big players pay higher prices for specific types of paddy from time to time, which can encourage farmers to focus on producing the same type of rice in the next cultivating season to gain higher profits. For example, if the price for a type of rice like Keeri Samba is high this season, then, more farmers may choose to grow Keeri Samba for the next season. Over the past few decades, Sri Lanka has introduced various rice varieties to meet different market needs, which is positive in terms of diversity. However, there are no regulations to ensure that farmers cultivate the types of rice most needed by the country. This focus on higher-profit types, like Keeri Samba, has led to a decline in the overall yield per hectare. This has reduced overall rice production and affected supply stability.

How is this current rice issue affecting everyday Sri Lankans? What impact does it have on people’s daily lives?

Everyone agrees that rice, as a staple food, should have a controlled price. But, right now, rice is being sold above the Government mandated control price due to market pressures and outdated policies. As a result, wholesalers and retailers set their own prices, which leads to consumers being overcharged. Unfortunately, the Government has not taken action to update the control price for rice, and consumers are bearing the cost. Updating the control price in the gazette is essential for protecting consumers from exploitation.

Have any institutions made serious efforts to address or solve this rice issue?

Sadly, there hasn’t been sufficient intervention from the relevant institutions. The main agency responsible for setting control prices, the CAA, has not done enough to enforce pricing regulations, especially against large-scale rice mill owners. Instead, they mostly penalise small retail shops for selling rice above control prices, which doesn’t address the key issue. Additionally, agencies like the Department of Agriculture and the Department of Agrarian Services under the Ministry of Agriculture are responsible for guiding farmers on which types of rice to grow based on national needs. However, they haven’t fulfilled this responsibility over the past several decades, which has contributed to the problem.

Why do attempts to control rice prices through Government measures often fail?

Government price control measures often fail because they are frequently motivated by political agenda instead of scientific data. Governments may impose control prices on essential items like rice to avoid a backlash from the public, but, these prices are rarely based on actual production costs or market conditions. For example, pricing rice based on average production costs without considering variations in quality is like trying to sell a luxury item and a basic item at the same price – it just doesn’t work in practice. If the CAA took these factors into account, price control would likely be more effective.

Is there any truth to claims that rice is being used to make alcohol, like beer, and contributing to a shortage?

No, this is totally false. Around 30,000 MT of rice is used each year in alcohol production, which is a very small fraction of the country’s overall rice production. Given that Sri Lanka’s total rice production exceeds its annual requirements, this small amount has minimal impact. It’s not correct to say that rice shortages are caused by its use in alcohol production.

Is there any validity to the accusation that large-scale rice mill owners are creating an artificial shortage of rice?

The accusation that large-scale rice mill owners are creating an artificial shortage isn’t new in Sri Lanka. This claim tends to surface whenever rice prices increase. The current rice market has multiple players, including middlemen, large mills, and smaller-scale millers, who hold rice stocks using loans from State-owned banks. About 90% of these loans come from Government banks. This stockpiling is what can lead to shortages, especially if the rice isn’t distributed in a timely manner. The Treasury, which oversees State banks, allows loans to these stockholders, so, before blaming the rice mill owners alone, it’s important for the Treasury to adjust its policies. If hoarding is a cause of shortages, then why are these loans still being provided?

What short-term measures could the Government take to prevent rice prices from increasing further?

Historically, rice prices in Sri Lanka tend to increase during the final three months of the year, a trend that has been ongoing for years. To manage the market during this period, the Government needs to maintain a buffer stock of rice. Due to past mistakes, the current Government doesn’t have sufficient stock to stabilise the market. In the short term, if State banks carefully regulate loans to rice businesses, paddy stocks are turned into rice more quickly, and this could help control rice prices. Without intervention, rice prices may exceed Rs. 250 per kilogram until the next harvest in two months.

Are there any long-term solutions to prevent this recurring rice-related issue in Sri Lanka?

Yes, there are long-term solutions that could help stabilise the rice market. One effective strategy would be for the Government to control a small portion – about 10% – of the rice market. This doesn’t mean that the Government should own rice mills or hoard large amounts of rice. Instead, they could develop and strengthen the co-operative system, which was part of the President’s election manifesto. By maintaining a small share of the rice market through co-operatives, the Government could have some control over pricing. This will eventually protect consumers from price fluctuations.

Quotes 

Outdated Govt. pricing policies on rice retail don’t adjust for inflation and production costs

Regularly review and adjust rice production and farming costs at least every 6 months. This requires a systematic, scientific calculation to account for inflation, labour, transport, and other costs. If current regulations make it challenging to carry out regular reviews, introduce necessary legal changes

The Govt. doesn’t have a sufficient stock to stabilise the mkt. If State banks carefully regulate loans to rice businesses, paddy stocks are turned into rice more quickly, and this could help control rice prices. Without intervention, rice prices may exceed Rs. 250 per kg until the next harvest in 2 months

In recent years, the rice mkt. has been dominated by about 10-12 large-scale rice manufacturing cos., which control nearly 50% of the mkt. 

No regulations to ensure that farmers cultivate the types of rice most needed by SL 

Wholesalers and retailers set their own prices, which leads to consumers being overcharged and exploited 

CAA mostly penalises small retail shops

Agri. Dept. and Agrarian Services Dept. have not sufficiently guided farmers on which types of rice to grow based on nat. needs

Around 30,000 MT of rice is used each yr in alcohol production, which is a very small fraction of SL’s overall rice production

The current rice mkt. has multiple players, including middlemen, large mills, and smaller-scale millers, who hold rice stocks using loans from State-owned banks. This stockpiling is what can lead to shortages, especially if the rice isn’t distributed in a timely manner. The Treasury, which oversees State banks, allows loans to these stockholders, so, before blaming the rice mill owners alone, it’s important for the Treasury to adjust its policies 

By maintaining a small share of the rice mkt. through co-operatives, the Govt. could have some control over pricing