Price cap sparks rice struggle in Sri Lanka, fuelling the black market
A price cap on the retail price of rice has triggered economic instability, causing supply shortages. Government moves have failed to solve the crisis. The Consumer Protection Authority has reported difficulties in monitoring and frequent limited results.
Colombo (AsiaNews) – The imposition of a price cap on the retail price of rice, a staple food in Sri Lanka, has created a complex economic situation characterised by market distortion, supply shortages, and unintended social consequences.
Rice provides 45 per cent of all calories consumed by the average Sri Lankan and rice paddies represent 34 per cent of the country's total cultivated area. With an annual per capita consumption of over 181 kg, the island nation is the eighth-highest consumer in the world.
The poor are the most affected by price controls, which have led to artificial shortages in the country. The progressive decline of official distribution channels has inevitably boosted the black market to fill the gaps.
Given that rice affordability is a delicate and politically sensitive issue, successive governments have intervened in the market through price control mechanisms.
In December 2024, the government, through the Consumer Protection Authority (CAA), imposed maximum retail prices for several rice varieties, setting the price of the Nadu variety (popular among the poor and lower-middle classes) at 230 rupees per kg (US$ 0.75), the "Samba" variety at 240 rupees per kg (US$ .80), and the "Keeri Samba" variety at 260 rupees per kg (US$ 0.85).
The move was intended to protect consumers from price hikes at a time of perceived shortages and potential hoarding by millers.
“The imposition of maximum retail prices has triggered great economic instability due to market distortions and supply shortages with unintended social consequences,” said economic analysts Kalindu Alwis and Nilmini Mendis speaking to AsiaNews.
"Although price controls were imposed to protect consumers, price caps have produced negative effects. This has favoured the black market, and reduced access to food for vulnerable groups.” For the two experts, “it is necessary to go beyond price controls and implement market-oriented reforms and investments in agricultural productivity to ensure long-term food security."
"The imposition of price controls through government intervention in the rice market dates back several decades," Kalindu and Nilmini explained, but this has not produced "tangible results" when it comes to price controls "during periods of price volatility or perceived crises”.
Meanwhile, the rice market on the island “is collapsing under the weight of contradictory government policies. Because official markets are unable to operate at controlled prices, those willing to pay higher prices seek alternative sources.” At the same time, “suppliers willing to risk fines for violating price controls can earn substantial premiums in black markets. This ultimately harms consumers."
“In recent years, we have faced severe financial pressure due to the price control system since production costs exceed the mandatory selling prices”. As a result, “many millers have been forced to cease operations or significantly reduce production,” this according to Herath Banda Mudiyanse (67), Wijepala Appuhamy (65), and Chaminda Ratnayaka (56), millers from Polonnaruwa, the largest rice milling zone, in the Northwestern Province.
This, they add, “has caused supply chain disruptions that have spread from farmers to consumers, as millers reduce rice purchases from farmers and limit their daily sales to keep supplies going until the next harvest season.”
For small producers, this is particularly challenging situation since they lack adequate climate-controlled storage facilities and completely exhaust their supplies before the next harvest.
“Although price controls are meant to protect consumers from monopolistic practices, they often boost the market position of large producers, who can withstand temporary losses and benefit from reduced competition,” the millers lament.
According to senior CAA officials, “effective enforcement of price controls requires significant institutional capacity in order to monitor thousands of retailers across the country, conduct raids and prosecute violators”.
Such a process requires resources that the authority itself must provide, but “which often yields limited results as some retailers adhere to controls, while others flout them, leading to market fragmentation and inequitable access.”
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