In the recent past there have been many discussions on rice prices.

In order to understand the root cause

of this issue Ceylon Today interviewed Namal Karunaratne, the National Organizer of the All Ceylon
Peasants' Federation (ACPF).

Following are the excerpts:

?: One of the main topics of discussion in the recent months has been the shortage of rice and
the drastic increase in prices. We know that the severe drought in 2016 was one of the reasons for
the shortage, as production fell. But are there any other reasons?
A: Well, we did have a severe drought but there is no shortage of rice. If you look at the report of the
Auditor General regarding the stocks of rice to the COPE committee in December 2016, it says that there
was 1.6 million metric tons of rice in the country at the start of this year. Another 1.6 million metric tons of
paddy and 1 million metric tons of rice is set to enter the market in April with the Maha harvest. A small,
but significant harvest can be expected in the Yala season as well. Even if we ignore the Yala harvest we
have enough rice-2.6 million metric tons, to last till February 2018. We only need 200,000 metric tons a
rice per month.

So the question is why there is a rapid rise in prices. To answer that, we need to understand the rice and
paddy market of Sri Lanka. Around 60 per cent of our rice and paddy market is controlled by a handful of
people. Because they have so much power they are able to procure paddy at a low price, between Rs 28
- 34 a kilo. But they sell a kilo of rice at a very high price, often over Rs 98 a kilo. This gives them a net
profit of at least Rs 30, per kilo.

These are the people who have created this artificial shortage of rice. We proposed to the government on
how they can ensure that rice is sold at around Rs 70 per kilo in the market and the government accepted
our proposal. The government had over 200 000 metric tons of paddy, and we advised against selling
stocks to the big mill owners. We urged the government to distribute this stock among the small mill
owners and encourage them to produce rice along with a fee for the process and thereafter repurchase
the rice from then. We also urged the government to come up with a control price. This way the big mill
owners would not be able to sell a kilo of rice for around Rs 100. The government admitted that our
proposal was sound but it was not implemented. Against all logic the government distributed most of its
stocks among the big rice mill owners. Dudley Sirisena, the brother of the President, openly told media
that he also used seven proxies to purchase paddy from the government. This was a big mistake. The
government sold these stocks between Rs 39 and 42, to the big mill owners who later resold it for over Rs
50 per kilo. Not only did the government make a loss but also it led to an increase in the market price. We
have evidence to prove this.

?: If you have evidence, do you plan to take any formal action, for example, going to an institution
that investigates corruption?
A: We have already lodged a complaint at the FCID. We surrounded the Paddy Marketing Board (PMB),
we protested and we did a public awareness campaign. It's only after our lobbying that the government
came up with a maximum retail price. We commend this decision but the horse has already bolted.
Another problem with this maximum retail price is the timing. Now it is harvesting time and the
government has artificially suppressed prices. This has lowered the price of paddy and now farmers sell a
kilo of paddy at around Rs. 35. This has given the big mill owners the opportunity to exploit the poor
farmers again. This has been the practice of all governments, they introduce price control when farmers
are harvesting which leads to low paddy prices.

This in turn allows the big businessmen to exploit farmers who stock up. When the farmers have
completed selling their paddy, the government allows big mill owners to increase prices and to make
colossal profits.

This is a vicious circle. We know for a fact that the big mill owners can sell a kilo of rice at the wholesale
price of Rs 62.40. The paddy that is with the big mill owners were purchased below Rs 32, but we have
used Rs 34 per kilo as the baseline. Thus the mill owners can sell rice at the maximum retail price
enforced by the government.
The government initially wanted a maximum retail price for imported rice. That would have been a
disastrous move, simply because the rice mafia would start selling imported rice, which is cheaper, as
local rice. This was what they wanted to do and since it was the big mill owners who imported rice, they
thought this would be a bonanza.

?: Economists often claim that demand soars when a control price is introduced. This demand
drives the prices up which in turn creates a black market. Do you agree with this statement?
A: It all depends on how you do it. Right now the government has really messed it up. The big mill owners
hold all the trump cards, their stocks are full while the government has no paddy reserves and they
control the imports. When the government introduced a maximum retail price, they gathered in
Polonnaruwa and decided to stop issuing rice to the market. They also decided to recall stocks in the
market. But whom does the government target? The retailer. What can retailers do? How can they sell at
Rs 72 when the wholesale price is more than that? The government must target the real culprits, and they
are the big mill owners.

The government has two laws that it can use the Consumer Affairs Authority Act (No. 09 of 2003) and
Paddy Marketing Board Act (No. 14 of 1971). Both laws state that a person cannot stockpile paddy or rice
without issuing them to the market. The mill owners have openly said they will refuse to issue rice stocks
to the market. They can't do that. This statement alone is adequate to arrest them.

We must also not forget that rice is a national product. The farmer produces it but all Sri Lankans, who
pay direct and indirect taxes, play a role because the government spends a colossal amount of money on
fertilizer subsidies.

The farmers also get the water for irrigation free of charge and we must realize that there is a cost for this
borne by the tax payer who pays for the maintenance of irrigation systems, tanks, payment of officials etc.
The government also spends a lot of tax payer monies on training and educating farmers and to maintain
a large number of officials to ensure that the needs of farmers are met. So we must acknowledge the fact
that the people of the country also have a claim over the paddy production because they have contributed
a huge chunk of the production expenses.

?: Can you tell me how much does it cost to produce one kilo of paddy? Is it extremely high
compared to other countries of the region?
A: Right now the cost of production is around Rs 36 a kilo. In 2013, the Central Bank calculated that it
cost Rs 33.22 to produce one kilo of paddy.

?: Rs 36 seems to be a bit on the high side. Is there any possibility that the farmers can also make
a profit while the consumer can also buy a kilo of rice at an affordable price, let's say under Rs
70?
A: Yes that can be done, but the government will have to be more pro active and it needs to be smarter.
First steps should be taken to reduce the cost of production. For that the price of fertilizer, agricultural
equipment and seeds must be lowered. This can be achieved by lifting the taxes on agricultural
equipment and seeds. Also we must see if we can increase productivity and reduce transport costs. I
don't think we should call assistance given to farmers as 'aid' or 'a 'subsidy,' I think a better term would be
a 'contribution for production,' because the responsibility of ensuring Sri Lankans are fed is the
responsibility of the government and not the farmer. If we can reduce the cost of production of paddy to
around Rs 15 a kilo, then the government can buy a kilo at Rs 25 and sell a kilo of rice at around
Rs 50.

?: The contribution to the GDP by the agriculture sector has been falling, but we still have a lot of
people involved in agriculture, around 28 per cent of the workforce. This implies that we also have
a problem with the productivity, how can we address this?
A: In Sri Lanka farmers do what they think is best, there is no supervision, regulation or proper technical
assistance. We don't even know how much paddy, grains, vegetables and fruits we need to produce.
Thus we don't know how much we must produce and the extent of land needed for this. Because we have
no plan everyone suffers. During the harvesting season of some vegetables the price hits rock bottom
because the supply has exceeded the demand by a lot. The government also has no storage facilities to
keep the excess production of vegetables during harvest season.