By Rajan Philips –

Rajan Philips

The ideological Left and Right in Sri Lanka have staked out their positions on the country’s perennial rice crisis. In the view of the ideological Left, the country’s food crisis including the recent rice crisis is even traceable to the allegedly flawed IMF program. And the preferred solution is getting back to the future and achieving self-sufficiency in food based on a public distribution system that has been neglected and/or abandoned after 1977. What is conveniently forgotten is the scourge of shortages and the ridiculous restrictions on inter-district movement of rice before 1977 that set the political stage ready for the ideological and even habitual, but not at all pragmatically calibrated, launching of economic liberalization.   

For the Right which is no where near what it was in 1977, the current and the recurrent September to December rice crisis is the cumulative result of the failed policies of price controls, import controls that were reintroduced after 2005, and the old self sufficiency mindset itself. Open up the market for locally produced rice to compete with imported rice and establish steady supplies and a price equilibrium. If prices occasionally rise to become unaffordable, people can eat bread until the hidden hand imposes a new price equilibrium. That is the gospel according to the Right.

Self-sufficiency in Rice

The fact of the matter is that based on annual production and consumption data and estimates, Sri Lanka has achieved self-sufficiency in rice, and this has been so for about three decades. That it happened under the open economy is not denied. In fact, pursuing self-sufficiency in rice has been a traditional UNP goal and not the SLFP’s. CP de Silva after an illustrious Civil Service career as Permanent Secretary to Prime Minister DS Senanayake, introduced self-sufficiency to the SLFP vocabulary after becoming a powerful Minister in the 1956 SWRD Bandaranaike government. He was quickly rebuked in parliament by his elder kinsman, the LSSP’s Colvin R de Silva, that “one can achieve self-sufficiency only in one’s grave.”

Positive free trade has historically been the cry of the Left from the 19^th century. Yet specific to rice and Sri Lanka, the balanced position articulated by Dr. Gamini Corea is a timeless advice, that “agricultural policies should not be guided entirely by considerations of comparative advantage,” … and that it would be “fool-hardy not to achieve a minimum self-reliance in basic food stuffs.” And none more so than in the areas paddy cultivation and rice production that have been so integral to Sri Lanka’s civilizational existence.      

At the same time, self-sufficiency in rice is not assured year after year due to adverse climate conditions. Alternating droughts and floods can upset all the self-sufficiency planning, as it happened in 2016. Now we know economic blunders such as a man-made fertilizer crisis can drastically impact our self-sufficiency as we saw in 2022. One would hope that the Rajapaksa history will never repeat itself, but weather disruptions can occur any year and every year. So, there has to be a well laid out Plan B for dealing with shortfalls in rice due to weather conditions.

But the recurrent September-December rice crisis is not due to weather but the manipulation of the supply-demand imbalance between the near constant monthly demand for rice and its biannual supply from the harvests of the Maha and Yala cultivating seasons. The well established seasonal pattern is that the main Maha season accounts for about 60% of local production and its harvest arrives in the mostly in the month of March every year. The harvest of the smaller Yala season brings the balance 40% usually during the month of August.

Monthly ‘Rice-Flow’

The paddy and rice statistics for the year 2023 indicate a total production of just over 3.0M metric tons of rice (out of 4.5M metric tons of paddy) and a total consumption of just under 2.5M metric tons, indicating a net surplus of about half a million metric tons. The monthly ‘rice-flow’ is conditioned by the steady monthly demand of approximately 205,000 metric tons of rice and its biannual points of supply of 1.8M metric tons of the Maha season rice in March-April, and 1,2M metric tons of the Yala season rice in August-September.

The Maha season supply of 1.8M metric tons alone can meet the monthly requirements until about the month of October. With the addition of the Yala supply of 1.2M metric tons by September, a positive ‘rice-flow’ can be maintained (with a surplus of 0.5M metric tons) until the next Maha harvest. This would usually be the case every year unless there is a weather disruption. The recurrent reality, however, is that supply levels drop, and prices increase during the months of September to December, causing rice shortages and price increases and forcing governments to rush in rice imports and exercise price control to avoid a political crisis. Usually, the governments’ remedies have been making matters worse.

The monthly retail price fluctuation is across the main paddy and rice types (samba, nadu, red rice etc.) and it has shown a generally consistent pattern of increasing prices from September to December, falling prices from January to March, slight increases in April, May and June, and ending with decreases over July and August.  The highest retail price per kilogram of rice is registered in December and the lowest in March, with a Rs. 10 to Rs. 15 average difference between the two.

The general diagnosis is that the rising price from September to December and the falling price from January to March is the result of supply manipulation by a few large rice millers with large storage capacities who collude among them to restrict supply before December and glut the market after January. The main objective would seem to be not profiteering in the months of September to January but driving down the prices after January so that millers can pay the minimum price to farmers for purchasing paddy after the new Maha season harvest in March. Farmers are constantly in a bind no matter what the season is. They have no storage capacity and are constrained to turn over their harvest not to any miller or buyer, but generally to the one to whom they are invariably indebted to for obtaining seed paddy, purchasing fertilizer and other inputs.

The alternative explanation is that the rice stocks with millers go down during the year end months even as the demand for rice slightly goes up due to the increase in the number of tourists arriving in the country. When imports were freely allowed, the explanation goes, the recurring shortfalls were compensated by imported rice varieties so that rice supplies were maintained, and sharp price increases were avoided. This pattern was apparently broken after 2005 by the restriction on imports and high import duties and the impacts on the people became harder.

But the dispute over imports does not explain why rice stocks should fall below demand levels at any time during the year unless there have been weather disruptions. The additional demand attributed to tourist populations or beer production is likely to be marginal. While there must be flexibility in turning to imports to deal with shortfalls in local production due to adverse whether conditions, relying on imports should not be the answer to supply manipulations by large rice millers.

To date the problem of the market power of the large rice millers has been seen as more of a political problem but not as a technical as a technical challenge. At the political level, i.e., ministerial and cabinet level, the response to the rice crisis all these years has been one of inaction and overreaction. The inaction is by the government towards the widely acknowledged problem of a handful of large rice millers controlling the marketing and pricing of locally produced rice during the inter-seasonal months between end of the yala season harvest and the beginning of the maha season harvest. The overreaction is also by the government to address rice shortage and price increase by enforcing price controls and allowing rice imports.

For the present NPP government, unlike its recent predecessors, there is no evidence of there being vested interests to be served or having economic IOUs to anyone. As well, the NPP government notwithstanding its ideological prehistory is showing signs of taking a practical approach to governing. Specific to the rice situation, Sri Lanka has gone through both the public distribution system and the private marketing system, and neither approach has by itself always produced the desired results.

Being practical in this instance would mean leveraging what works and underusing what does not. It also means that the government must rapidly work towards establishing a comprehensive database covering the rice milling industry, as well as a marketing information system for the rice sector at all levels. Agricultural Economists and Professionals have been calling for this for some time and it is a task that requires the government’s immediate attention.