No money, paddy or rice Millers checkmate Government

Farmers in Sri Lanka face severe hardships in the face of the Government being unable to enforce a healthy price regulation for paddy which would benefit all parties

 

• People are inquiring as to why Govt. cannot control rice prices
• Under the Shakti Rice Programme 500,000 kgs of rice was supplied to the market
• Rice millers had to chose between Sajith Premadasa and Gotabaya Rajapaksa at the last presidential elections
• Even if a kilo of paddy is bought at Rs 50 when taken for rice production it costs Rs 56
• The Govt. lacked a mechanism to buy these stocks
• If rice is imported, small-scale millers would have no access to the market and would not be able to pay off their debts

 

2 December 2020

As President Gotabaya Rajapaksa completes his first year in office, the Consumers Affairs Authority (CAA) has issued five gazettes on the sale of rice. However, rice is not yet sold at the gazetted prices. Trade Minister Bandula Gunawardena has said that people must wait for the next harvest to buy rice at the gazetted price, and for now they must settle for the existing prices. Meanwhile people are inquiring as to why the Government cannot control rice prices.

SHORT-SIGHTED

Government schemes since 2000 have caused the number of small and medium -scale rice mill owners to fall from 2000 to 700 during the last two decades. Previous Governments focused on safeguarding large-scale rice mill owners, and turned a blind eye to small and medium-scale mills. 

In 2018 the All Island Rice Producers Association apprised the then Government on these issues. In response, then President Maithripala Sirisena and Prime Minister Ranil Wickremasinghe instructed Economic Reforms and Public Supplies Minister Harsha de Silva to implement the Shakthi rice project. Under the project, a Cabinet Paper was issued temporarily blocking banks from suing rice mill owners. As a result, many mill owners used bank loans meant for the industry on luxury vehicles and sprawling houses. Others obtained collateral loans by pawning the same paddy stock in two banks. As granting individual loans to mill owners was risky, mill owners organised themselves into district-based cooperatives and obtained bank loans. 

Eight such cooperatives were formed island-wide. The All Island Rice Producers’ Cooperative Society (AIRPCS), established under the Linear Cooperative Development, was the umbrella body that regulated these cooperatives. AIRPCS was also vested with the ‘Shakthi’ brand name. In March 2019, the Treasury allocated Rs 1 billion to the eight cooperatives. The cooperatives used these funds to buy and distribute paddy to their member millers, who in turn supplied rice stocks to wholesale markets in line with the government-stipulated maximus retail price. 
When purchasing began, the market price for 1kg of Samba rice was Rs 35. But the cooperatives bought it for Rs 41, thereby pushing the market price up. When rice stocks were sold, the market price of 1kg Samba was over Rs 115, and it fell to Rs 85 within a week. 

At the start of the programme paddy was bought from farmers. And in October 2019 the programme was successfully launched with paddy stocks under Paddy Marketing Board being turned into rice. The price of 1kg of Nadu rice was Rs 80 and Samba was Rs 85. The founder president of the Shakthi Rice project and AIRPCS President Mudith Perera said that under the programme they were able to supply up to 500,000 kg of rice to the market.
A week after the 2019 Presidential Elections, the programme was halted following an order from above. On December 19, 2019 the new Government issued its first gazette increasing the rice price to Rs 98, and the controversy began.

An association of rice millers connected to the ruling Sri Lanka Podujana Peramuna was formed for the 2019 Presidential Elections. It promised to write off millers’ debts as soon as Gotabaya Rajapaksa became president. Loans obtained by small-scale millers exceeded Rs 15 billion. Millers had to choose between voting for Sajith Premadasa and paying off their debts through rice production income or voting for Gotabaya Rajapaksa and having their debts written off for nothing. 
Mudith Perera said that most millers voted for Rajapaksa on November 16, 2019 to have their loans settled in return for nothing. Soon after, on December 22, co-chair of the SLPP millers association held a media briefing and announced that all debts of rice millers would be settled. However, the Government hasn’t taken such a decision yet.

On December 12, 2019, the Government announced new rice prices. The maximum retail price for both Samba and Nadu was set at Rs 98 per kilo. With that, the gazette issued by the Yahapalana Government on May 31, 2019 pricing Nadu at Rs 80 and Samba at Rs 85 was revoked. In March 2019, the Yahapalana Government had a discussion on rice prices with small, medium and large-scale rice producers. Through this, the Government set a price formula for rice which was 2.1 of the fixed rate per paddy kilo. According to this all parties agreed to maintain a maximum retail price per kilo of Nadu rice at Rs 80 and Samba at Rs 85 until March 2020. Disregarding this agreement, the present Government increased rice prices by Rs 18, thereby giving large-scale millers an opportunity at hitting the jackpot. Paddy stocks were not with the farmers, but with the large-scale millers. With the price hike, large-scale millers who bought paddy hoping to sell it at Rs 80-85 could earn additional billions of rupees. That was their prize for their involvement in the 2019 Presidential Elections. 
Even though the new Government announced a guaranteed paddy price for the 2020 Maha season, the price was not updated.

"When purchasing began, the market price for 1kg of Samba rice was Rs 35. But the cooperatives bought it for Rs 41, thereby pushing the market price up"

Guaranteed prices for all rice varieties were the same, so farmers were inclined to growing Nadu. As a result, there was a shortage of Samba and Keeri Samba in the market. After large-scale miller Dudley Sirisena suggested reducing the rice price to Rs 90 wasn’t a good solution, the Government increased the price of Nadu to Rs 96 and Samba to Rs 98 per kilo. And based on a recommendation by an inexperienced person in the industry, the Government again dropped the price of 1kg Keeri Samba to Rs 120. Producing good quality Keeri Samba requires it to be stored for about a year. A total 50 cents per 1kg of paddy is paid monthly as bank interest. So even if a kilo of paddy is bought at Rs 50, when taken for rice production it costs Rs 56.

WORKING PRIOR TO SCHEDULE

This year, water for the Yala cultivation season in the Mahaweli zones was released six weeks prior to schedule. 
The Yala paddy harvest, which normally reaches the market in August and September, arrived in July and August this year. The Government lacked a mechanism to buy these stocks, and millers sold additional stocks as animal feed. Had there been even one minister who knew the nature of the market, selling paddy as animal feed could have been avoided by a gazette. The Government did not take any steps to establish a mechanism to purchase the paddy stocks or maintain it as a safety stock after turning it into rice. By the time a gazette was issued, over 25% of the Yala harvest had become animal feed.

Annually, rice prices usually increase after October 15. Since this time the Yala season began six weeks earlier, and the stocks were used as animal feed, rice prices began increasing from September. Without identifying the cause for the price increase, the Government imposed a maximum wholesale price for rice through a gazette notification issued by Minister Bandula Gunawardena. But rice is not available in the market at the gazetted price. Instead rice millers have withdrawn from producing rice.

The most unsuccessful paddy purchase in the history of Paddy Marketing Board was recorded this year. During the Maha season the paddy purchased was limited to 25000 tons. The Board bought 50000 tons of paddy at Rs 38 per kilo in 2019, and bought only 50% of that amount at Rs 50 per kilo with the aid of the army in 2020. 
While instructing the Board to purchase paddy at Rs 50 per kilo, the Government also instructed District Secretariats to buy paddy at Rs 54 per kilo. According to Government standards, the moisture of paddy should be at 14%. State-guaranteed prices are applicable only to stocks which meet proper standards. According to a Finance Ministry programme, District Secretariats bought paddy at Rs 44 per kilo while the moisture remained at 22%. In such cases, the paddy must be dried until it reaches 14% before storage. If not the paddy stocks are destroyed. When paddy is dried, the moisture that gets removed weighs up to 125g. In this manner, the Government has bought only 875g of rice at Rs 44, and not one kilo. The Government spent Rs 4 per kilo during the drying process, and in total 1kg of paddy cost Rs 54.28. The private sector also had to buy paddy at Rs 44 per kilo, and after the drying process, a kilo cost Rs 53.

District Secretariats had a safety paddy stock belonging to the Government. A safety stock should only be issued to the market during a shortage. In June, July and August, wholesale rice prices dropped to Rs 80-85 and Finance Ministry officers decided to turn the safety stock into rice during this period. Thereafter, Nadu rice stocks were given to Lanka Sathosa at Rs 95 per kilo. While Lanka Sathosa could purchase rice from the market at Rs 85 per kilo, based on Finance Ministry decisions, rice was bought at Rs 95 per kilo.
These stocks were kept in the stores of small millers. According to sources, some of these stocks have gone missing. The Government is left with no money, paddy, or rice. But Government officers have been provided with incentives to regulate this programme. 

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