Challenges in setting a price for rice

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In the midst of Sri Lanka’s unprecedented economic crisis, rice prices have risen to unsustainable levels. However, the incumbent Government recently decided to reinstate a Maximum Retail Price (MRP) for rice to prevent uncontrollable price increases.

The price of a kilo of rice in the open market has now surpassed Rs 200-240, while the Government has been forced to impose import restrictions on a number of essential commodities, including food, driving up the price of staples such as milk powder and rice.

Although the Ministry of Trade claims that wholesale network Lanka Sathosa outlets are selling rice at reduced prices, it was learned from several wholesale outlets that imported rice was not meeting demand.

However, the question is whether retailers will sell this rice at the MRP under the new cabinet rules and regulations, as well as the newly implemented fine system.

State Minister of Cooperative Services, Marketing Development, and Consumer Protection Gunapala Ratnasekera said that an MRP for rice will be implemented to prevent a sharp increase in rice prices.

He also claimed that if an MRP is not set, further increases in rice prices will be inevitable and that they had recently agreed to set a control price of Rs 220 for rice. He also noted that buying Nadu at
Rs 220 per kilo is difficult in the current economic climate in the country, but that such a price is necessary to protect consumers as well as small and medium-scale rice producers.

“It is very difficult to buy Nadu at Rs 220 per kilo in the current economic climate in the country, but there is a need to protect consumers as well as small and medium scale rice producers by setting an MRP. This is due to the manufacturers’ high manufacturing costs. As a result, the control price is not fair to rice producers, and the farmer is having a difficult time protecting himself,” he explained.

The MRP for rice will not be activated for rice sold at a reduced price by Sathosa and supermarkets, and this price will apply to rice sold at the same price by Nadu, Samba, and Keeri Samba.

The Minister of State also stressed that no control price for Sudu Kekulu rice has been established.

Are they benefitting the large-scale rice growers?

He also denied claims made by some media outlets that the control price was implemented to benefit pro-government rice growers. The Minister also stated that there is no specific list of goods and that to prevent future price increases in essential commodities, an MRP will be introduced in consultation with manufacturers and action will be taken to list those goods.

He also said that selling rice above the MRP is strictly prohibited at a time when people are in desperate need of food, but selling rice below the MRP is not a problem.

The MRP will not be applied to rice provided by the Paddy Marketing Board at special discounted prices, according to Duminda Priyadarshana, Deputy Chairman of the Paddy Marketing Board.

According to him, the Paddy Marketing Board collected over 70,000 metric tonnes of paddy this year, the highest buffer stock since 2015. As per Cabinet decisions, that paddy will be supplied to Sathosa, Co-operatives, and Supermarkets for the festive season at a price of Rs 140 per kg.

Sathosa Co-operative Networks has rice for sale at a price of Rs 145 since the beginning of April.

New fining system

Meanwhile, the Consumer Affairs Authority (CAA) has proposed a fine of Rs 5 million and a six-month prison sentence for selling rice at a higher price than the MRP published in the Gazette.

For the first offence of selling rice above the maximum price, a company can be fined between
Rs 100,000 and Rs. 500,000.

A private company can be fined between Rs 500,000 and Rs 5,000,000 and imprisoned for six months, according to the Authority.

Indian High Commission involvement

Declaring that India’s economic assistance to Sri Lanka stands at more than USD 3 billion in 2022 alone, the Indian HC said that their support has been instrumental in addressing the diverse needs of the Government and people of
Sri Lanka.

The statement issued by the IHC noted that the USD 1 billion Credit Facility for purchase of food, medicines and other essential commodities is already operational and around 16,000 MT of rice supplied under it, ahead of Avurudu, is being distributed through various Sathosa outlets. Commodities to be supplied from India under this concessional credit line are finalised by the Government of Sri Lanka. India facilitates these supplies strictly in accordance with Colombo’s priorities. As on date, additional consignments of rice and other food supplies, medicines and industrial raw materials, among others, are envisaged under the credit line.

Abandoning paddy cultivation?

There are currently only a few large-scale paddy mills in Sri Lanka, indicating that the paddy market is oligopolistic. They have market power as a result of the withdrawal of small and medium mills and traders. Approximately 90 per cent of mills in the areas where the majority of the rice mills used to be are now closed. Outside of the main paddy growing districts of Polonnaruwa, Ampara, Hambantota, Anuradhapura, and Kurunegala, many paddy farmers have abandoned paddy cultivation. Despite the MRP, it is clear that those farmers and mill owners have been forced to exit the market due to lack of a favourable business environment.

Farmers primarily use imported chemical fertilisers due to government subsidies. There are enough evidence to conclude that the private sector, including organic and traditional rice varieties, can provide high quality rice without government price controls.

Never ending?

For quite some time, there has been a major rice and paddy crisis. This situation has arisen in relation to paddy purchases and rice prices. As a result, consumers face significant challenges. Rice shortages have erupted on occasion for nearly seven decades.

These days, we hear a lot about the price crisis. The issue of pricing between the private sector and the government has also been difficult to resolve. The inability to keep rice prices under control has now become a crisis. Rice is also being imported to keep the price of rice under control.

Will the MRP, however, benefit large-scale rice producers while endangering small-scale producers?

By Thameenah Razeek