New rice price formula to bust large rice miller oligopoly
The ages-old rice pricing mechanism is set to be transformed into a new pricing formula to re-invigorate the market competition with the aim of enhancing farmers’ income while curtailing local market manipulations by the country’s large rice miller oligopoly, Agriculture Ministry sources said.
The new formula will stabilise the price of rice, fixing a stipulated price, removing price controls and preventing an artificial price hike in the market.
The government will be providing concessions to small and medium paddy millers by releasing Rs. 1 billion from the Treasury to resume their paddy purchasing and processing process affected by the monopolistic practices of bigger rice millers, a senior official of the Ministry said.
President Maithripala Sirisena submitted a cabinet memorandum this week seeking approval to provide subsidies to small and medium scale rice mill owners affected by oligopoly.
With the aim of streamlining the paddy marketing system to meet the needs of consumers, the rice pricing formula is to be devised considering paddy production as a function of land size, cost of fertiliser, cost of seed, cost of farm power and labour use in order to sell rice at a reasonable price to consumers without imposing price controls, he divulged.
He added that this decision was announced at a recent meeting between
Agriculture Minister P. Harrison, and a few representatives of the Mill Owners and Farmers Associations.
According to a simple calculation made as an example using the proposed pricing formula, when the purchasing price of a kg of paddy is Rs. 10, the wholesale price of a kg of rice is Rs. 24 and the retail price is Rs. 28. The current selling price of a kg of rice exceeds Rs. 100 while the purchasing price of paddy was fixed at Rs. 36 per kg.
When taking the paddy purchasing price as a variable explained in the example to calculate the retail price, the wholesale price would be around Rs. 86.40 and retail price Rs. 90.80 which then is Rs.9.20 lower than the current retail price.
This formula is to be introduced in the backdrop of a 5-year work plan being implemented by the government in collaboration with the International Rice Research Institute ( IRRI) to advance Sri Lanka’s rice self-sufficiency goals through joint research for development projects in the country.
The work plan will also address current issues on agricultural productivity and sustainability targeting to increase the country’s rice production by 20 percent over the present level by 2030 to remain self-sufficient.
However farmers’ organisations claimed that, successive governments have always fallen into the trap of paddy millers’ oligopoly.
Paddy farmers get loans for their cultivation due to their poor economic situation and have no alternative other than selling their produce at any price to the millers who step in to buy their paddy stock as the poor farmers had to pay back the loans on time.
Private millers not only fix paddy prices ignoring the government guaranteed price but also create an artificial shortage in the market, to release the rice stocks only when the prices go up, a leader of a farmer organisation said.
Large scale private millers who purchase over 40 percent of Sri Lanka’s annual rice produce are controlling the market at present.
Under the normal paddy purchasing process, the government directs the Paddy Marketing Board, and local co-operatives to buy paddy at a designated floor price or guaranteed price.
Accordingly the government only purchases around 10 per cent of the national paddy production.
National Organizer for the All Ceylon Peasants Federation, Namal Karunaratne disclosed that that the rice industry is presently controlled by four leading rice millers with storage facilities.
He revealed that some of the small and medium rice millers are now bankrupt and they are compelled to close down their businesses due to oligopoly of these leading millers who purchase the whole harvest at very low price from farmers and store it at their stores – to sell later when there is shortage.