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It is well known that the country experiences an increase in the price of rice during the months of November, December and January. At this point in the harvesting schedule, rice/paddy stocks are in the possession of mill owners who hoard rice stocks. Accumulating large quantities of paddy is an exercise that requires large warehouses where it could be stored under proper conditions and also an enormous capital out lay. Only a few people can afford to venture into this type of enterprise. It is these stocks that are released to the market during the months where there would be a shortage and a resultant price increase. We have witnessed this process where the large mill owners seem to exercise some control in manipulating the price of rice. One remedy the state resorted to was to release to imported rice into the market. In the year 2007 the price of a kilo of rice reached Rs.80. There is however another aspect to this story. Although the price of rice was Rs.80 the producer received Rs.12 to Rs.15 per kilo of paddy that fetched Rs.80 when converted to rice. The hoarded paddy bought at Rs.12 and Rs.15 which sold at Rs.80 per kilo was a travesty that cried out for state intervention. That intervention came in the form of imposing a maximum retail price on rice. This is not a situation that is unique to Sri Lanka. Even in countries such as Malaysia the state imposes a maximum retail price on essential food items including rice. I consider the imposition of a maximum retail price on rice as a necessary intervention intended to deter the large mill owners from making unconscionable profits.
Now the price of paddy is determined by the price of rice in the market. This benefits both the producer and the consumer. For example the State has fixed the price of Nadu rice at Rs.60. But during the harvesting season the price fluctuates between Rs.50 and Rs.58. In November the price increased to Rs.60. So paddy is bought at a price relative to the selling price of rice. At present the maximum retail price is limited to Nadu rice at Rs.60 and Samaba at Rs.70. The price of paddy will be approximately 50 % of that price. The price of paddy at the moment is about Rs.28 for Nadu and Rs.30 for Samba. The farmers cost of production ranges from Rs.18 to Rs.20 per kilo. This assures him a comfortable margin for his efforts. This mechanism insulates the consumer and the farmer from exploitation .The first from the trader, the latter from the Mill owner. Those in the business of trading are not particularly pleased as they can no longer manipulate prices as and when they would want to. In a country where there is an open economy we cannot allow the rule of the jungle .The state has three responsibilities, that is the provision of facilities, supervision and regulation.
To elaborate further, the provision of accessible roads, loan facilities, electricity are some of the facilities that are obvious to any one. Supervision involves the monitoring of the market operations. Our institute helps in this process by keeping track of prices and any regular trends we could observe in the patterns of such price fluctuations. By regulation we mean intervention to prevent predatory practices . One such regulation is the imposition of the maximum retail price. In countries such as Malaysia and Thailand the private sector is also required to declare their stocks of paddy every fortnight which enables the government to monitor the reserves available. If wrong information is provided the trading license is cancelled.
However, here we do not adhere to a common norm of accepted business ethic, and it is not only the rice market that requires regulatory measures. Even maize, bombay onions and several other agricultural products call for regulatory intervention. If the producer gets disenchanted the economy suffers. In the past few years we saw that the largest segment of our society living in conditions of poverty were people engaged in agriculture. Another negative aspect in this situation is that the younger generation do not consider agriculture as a vocation to pursue. According to a survey conducted the agrarian research institute more than 80% of those who cultivate bombay onions are young people below the age of forty. Which begs the question would they continue with the cultivation of onions if it were not profitable?
Therefore price control could be considered as a state intervention that has had a positive effect on the economy and the people.
the author is the assistant secretary of the Hector Kobbekaduwa Agrarian Research Institute.
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