The present government is known for thinking after leaping. Having plunged feet first into controlling rice prices without prior preparation, it is now struggling t o remain afloat in a mire of its making. Price control, as we argued the other day, should be a temporary measure and a lot of planning should go into it before its implementation. For, the kneejerk reaction of traders is to hide stocks thus paving the way for a black market and landing consumers in deeper trouble.
The rice traders Mafia has struck back as expected. The Mafiosi sent a trial balloon immediately after the price control was announced by refusing to fall in line but since the government took stern action to ensure their compliance, they got cold feet. However, they are likely to stage a comeback.
Price control is something that economists frown on, as could be seen in the article below. Ideally, the best antidote to the sordid operations by big time rice traders /millers Mafia is to beat them at their own game by giving a boost to the supply of rice. At times of scarcity, prices shoot up unless there occurs a corresponding decrease in demand. In the world market, rice prices have shot up, as an ANN report carried in this newspaper today points out, from $ 378 per tonne in March to $ 700 in December. In Thailand, the price of rice reached an all time high of $ 760 per tonne. It is expected to go up to $ 1,000 per tonne in time to come. Among the reasons that experts have given for this kind of surge are the loss of yield due to natural disasters in countries like the Philippines, Bangladesh, Indonesia, reduction in land allocated to rice farming and panic buying and hoarding.
But before the implementation of the price control in question, in this country rice was freely available at exorbitant prices thus making it difficult to explain the phenomenon in terms of the conventional economic theories in the light of the factors that have sent rice prices soaring in other countries. There was no increase in demand for rice either. So, how was it that prices became so high?
It was due to a very high mark up by a politically motivated cartel of wholesalers and millers. They knew the consumer was at their mercy and they could hold on to their stocks unless they were bought at their prices. (The coconut wholesalers did likewise. A nut for which the producer was paid as little as Rs. 20.00 was sold to the consumer at Rs. 45-60! There was no shortage of coconuts in the market. High coconut prices were also due to unconscionable profits made not by retailer but by wholesalers.)
So, when a wayside retailer laments he is being driven to suicide by the price control on rice, he may not be lying. For, he may have purchased rice from wholesalers at prices higher than the stipulated ones. It is the unscrupulous wholesalers and millers that the government should have dealt with. There are disturbing reports that to prevent the market being flooded with rice after harvesting time, some millers sold part of their stocks as animal feed. They cashed in on the world food shortage. They knew export restrictions in most countries would prevent the government from importing rice immediately. Even if it did, they knew, corruption would prevent the imported rice from reaching the people. They were proved right when 20,000 metric tons of rice imported from India by some co-operative societies went straight to private traders recently direct from the Colombo Port!
Rice millers and wholesalers are aware that owing to the evisceration of the CWE, the government cannot handle rice imports all by itself to create an impact on the market. This has emboldened them to work towards the creation of a black market for rice so that the government will eventually be compelled to abandon its price control or adopt the much dreaded methods that characterised the United Front government (1970-77) such as rice rations and haal polla (barriers to curb unauthorised rice transport). It was such harebrained projects that caused the SLFP to be reduced to a few seats at the 1977 General Election. It took seventeen long years for the people to forget and forgive the SLFP.
There are signs of a black market emerging and it behoves the government to nip it in the bud. Cracking down on errant traders and hoarders may serve some purpose in the short run but the only effective way is to ensure a smooth flow of rice into the market. The government has ordered rice from Myanmar with a view to stabilising prices. But, how is it going to make it reach the consumer? The same goes for the rice the government will buy from local farmers. Time was when the CWE appointed franchise dealers throughout the country. That system reportedly didn t work due to political interference in the selection of franchise holders. Instead of relying on the ailing co-operative shops, the government should explore the possibility of appointing franchise dealers anew for retailing rice. Unless the government puts in place an alternative to the efficient distribution network of the rice Mafia it has taken on, the day may not be far off when it will have its snout rubbed on the ground.
The rice crisis has exposed the advocates of a laissez-faire State for their bankruptcy of thought. They have been compelled to ask the government to step in to stabilise prices! It was they who argued against State institutions like the CWE and pressed for their divestiture. Today, they have realised the need for the State to have the ability to act as an economic inertia reel in an emergency. For that it needs economic infrastructure. What would have been the position of the consumer if private rice traders and millers had been given free rein? Either thousands would have been starved to death by now or there would have been food riots.
There have been proposals to fill up paddy fields in some areas, especially in the Western Province, to start new industries and to wean farmers away from paddy cultivation and make them raise other crops such as maize and potatoes. Ironically, the thickheaded visionaries who were toying with such ludicrous ideas are now weeping buckets for the poor consumer who is unable to pay for rice!
The worst is yet to come. Rice exporting countries like India, Viet Nam and Egypt are restricting exports in a bid to stabilise prices at home. If this trend continues, Sri Lanka will be left with no country to import rice from. It is time we looked beyond price control and imports, however essential they may be in the short term, and grasped the nettle. The only long term remedy is to step up the domestic rice production.