The paddy problem is more than a price problem

By Dhananath Fernando

Originally appeared on The Morning

I recently joined a television programme to discuss the economics of paddy and rice. Three farmers representing farmer associations joined the discussion, together with former Governor of the Sabaragamuwa Province Prof. Dhamma Dissanayake.

It was difficult to listen to the reality faced by the farmers. Their main request was for a paddy price of around Rs. 120–140 per kilo.

The Government has announced a guaranteed price of Rs. 120, but the Paddy Marketing Board (PMB) does not have the capacity to purchase even a meaningful share of the total harvest. The private sector, meanwhile, purchases paddy at around Rs. 95 per kilo.

One farmer presented his numbers. After nearly three months of work, his profit from one acre was about Rs. 20,000. When you hear numbers like this, it is easy to understand why farmers are protesting.

There is also another complaint. Farmers argue that keeri samba has been imported when there are already adequate stocks in the country, putting further pressure on local prices.

We know there is a problem. It is also very easy to politicise it. But the solutions are more complicated than announcing another controlled price.

Suppose the Government forces private millers to purchase paddy at Rs. 120 per kilo. Either the price of rice will have to increase further, which will be politically difficult, or millers will simply reduce their purchases. Similarly, the Government itself cannot purchase the entire harvest at the guaranteed price.

There are around 346 storage facilities under the PMB, but their total capacity covers only a small fraction of the annual harvest. Therefore, the Government cannot become the buyer of last resort for the entire paddy market.

The problem of storage

When we look at the problem through an economic lens, one of the most important issues is storage.

My colleague Sudaraka Ariyaratne and researchers at Advocata have conducted an in-depth study on the paddy market, which is yet to be published. One important insight from their research is that market power in the paddy sector is closely connected to the ability to store the harvest.

Farmers and farmer organisations generally do not have sufficient storage capacity. Most of the storage capacity is with millers.

Paddy is also different from many other products because a large quantity of the harvest enters the market within a short period. Farmers cannot keep the harvest for long without proper storage. They therefore have little choice but to sell soon after harvesting.

When thousands of farmers bring paddy to the market at the same time, prices naturally fall.

Storage changes that equation. It gives the owner the ability to decide when to sell and allows the harvest to be released gradually into the market.

Therefore, if we genuinely want to empower farmers, part of the solution lies in storage.

One option is to create more storage opportunities for farmers and farmer organisations. Another is to improve access to storage for smaller millers, creating more competition in the market.

But how can farmers build storage facilities? That is where access to credit becomes important. Farmers, farmer associations, or farming communities should be able to borrow and invest in storage and other productivity improvements.

But banks require collateral. Many farmers have very little collateral. Some cultivate land under permits. Others farm rented land and pay part of the harvest as rent. This is where land rights become directly connected to the paddy problem.

We often discuss land rights as a separate economic reform. But without clear and bankable property rights, farmers cannot unlock the value of the assets they already use. The land remains dead capital. Without collateral there is no credit, and without credit there is no investment in storage, technology, or productivity.

The structure of the market

The second major issue is the basic demand and supply structure of the market.

Suppose our farmers suddenly achieve an extremely good harvest because productivity improves. Under the present system, even that success can become a problem. A larger harvest can create an oversupply and push prices down further.

Normally, when a country produces a surplus, exports can become a safety valve. But Sri Lanka has limited opportunities in this area because many of the rice varieties we cultivate do not have strong international demand.

Much of global demand is for long-grain varieties such as basmati. Sri Lanka largely cultivates different varieties suited to our own consumption patterns and agricultural conditions. We cannot simply switch to basmati overnight. Soil conditions, weather, seed varieties, and farming practices all matter.

Therefore, even if we produce a significant surplus, exporting it is not necessarily easy. At the same time, our cost of production remains very high.

During the television programme, one farmer explained how many parts of the process are still highly labour intensive. Paddy is dried on roads and open grounds using manual labour. Workers have to be paid at every stage. Paddy is stored in bags, which then have to be physically carried, stacked, and moved again.

From applying fertiliser to drying, storing, transporting, and finally processing the harvest, there are inefficiencies throughout the value chain.

Every inefficiency adds another cost. Eventually that cost has to be absorbed either by the farmer, the miller, the consumer, or the taxpayer. Most of the time, all four end up paying in different ways.

There is another structural weakness in the market. Farmers mainly depend on one broad category of buyer: the rice miller.

Ideally, paddy and rice should have many different types of buyers. Rice can be used for a range of industrial products and value-added applications. These can include processed foods, beverages, rice-based ingredients, and other industrial uses.

The more diverse the buyers are, the less dependent farmers become on a single market.

But such a market cannot develop through Government instructions alone. Farmers and smaller businesses need access to capital, storage, technology, and markets. New investors need space to enter. Competition needs to increase.

The real solution

The paddy problem cannot be solved simply by imposing a controlled price on rice or announcing a guaranteed price for paddy.

A guaranteed price without the capacity to purchase is only an announcement. A controlled rice price without addressing production costs creates shortages and distortions. Forcing millers to buy at a particular price without considering the final selling price will not create a sustainable market either.

The farmer who earns only Rs. 20,000 after three months of work certainly deserves a better outcome. But the answer is not another temporary intervention every harvesting season.

The real solution is to give farmers more options: the option to store, the option to borrow, the option to invest, the option to improve productivity, and, most importantly, the option to sell to more than one type of buyer.

For that, economics has to come into the paddy market.

When Price Caps Backfire: Rethinking Rice Policy

By Tormalli Francis

For a country that prides itself on self-sufficiency, Sri Lanka’s struggle to keep rice both affordable and available has become a recurring national drama. Long seen as the backbone of food security, the rice industry has weathered turbulent seasons — from erratic weather and disrupted harvests to sudden policy shifts and market shocks. In the latest Maha season, 701,453 hectares were cultivated, producing 2.7 million metric tonnes of paddy. Yet despite paddy dominating the country’s farmland, productivity gains have largely stalled — even slipping in recent years — reflecting both the resilience of farmers and the mounting strain of input shortages and climate disruptions.

The government’s recent purchase of over 40,000 metric tonnes of paddy through the Paddy Marketing Board (PMB), under a Rs. 60 billion procurement programme, highlights the state’s continued effort to stabilise supply. Yet, despite these interventions, the market still faces periodic shortages and sharp price swings that leave both farmers and consumers frustrated. These recurring bouts of scarcity expose the fragility of Sri Lanka’s rice economy — one long cushioned by decades of price controls aimed at shielding consumers. But in doing so, these policies have distorted incentives across the value chain, discouraging investments in production, storage, and distribution.. The result is a system that perpetuates the very instability it seeks to prevent. It is time to ask whether these controls genuinely strengthen food security, or merely preserve inefficiency in one of the country’s most sensitive markets.

The recent shortage of keeri samba rice lays bare the structural weaknesses in Sri Lanka’s rice production system. Favoured by urban consumers in the Western Province for its distinct taste and texture, keeri samba receives little state-level production support. Government-supplied seed paddy through the Department of Agriculture and the Paddy Marketing Board (PMB) is dominated by Nadu and other high-yielding varieties, prioritised for their productivity and lower cost. This bias is reinforced by a glaring data gap — the government lacks consumption data by variety. While the Household Income and Expenditure Survey (HIES) offers some insight into rice consumption patterns, it does not break down demand by type, leaving policymakers blind to shifts in consumer preference.

As a result, farmers often respond to the availability of subsidised inputs rather than to actual market demand. The acreage under keeri samba has steadily declined, making up only 14% of paddy cultivation during the 2024 Yala season (Figure 1). The problem is compounded by the infrequent nature of the HIES — conducted just once every five years — which fails to capture fast-changing consumption trends. Without targeted seed distribution or data-driven planning, keeri samba production remains limited and highly vulnerable to weather shocks, storage losses, and opportunistic stockpiling.

Figure 1: Keeri samba percentage of all cultivated paddy.

Sri Lanka’s rice market remains heavily tilted in favour of a few powerful millers who wield disproportionate control over both supply and price. With the capital and storage capacity to buy up large volumes of paddy right after harvest, these millers can influence availability and set the tone for prices during the off-season. This imbalance is compounded by the state’s chronic data deficit. The lack of accurate, up-to-date consumption data — especially by variety — leaves policymakers reacting to crises rather than preventing them.

While government interventions like price controls and import openings are often made in the dark, private millers operate with a distinct advantage: they have their own market data, financial liquidity, and logistical foresight. They can anticipate demand surges and time the release of stocks to their benefit, effectively steering the market. What emerges is a predictable cycle of shortages — not due to an actual lack of rice, but as the by-product of distorted policy incentives and concentrated market power.

The continued preference for keeri samba, despite its limited cultivation, has elevated it to a premium rice variety — one whose price now reflects both scarcity and status. In the aftermath of the economic crisis, as incomes recover and consumption habits shift, the price gap between Nadu and keeri samba has only widened. Yet, when the government steps in with price controls during shortages to “protect consumers,” the outcome is often the opposite. Controlled prices, especially when set below market-clearing levels, discourage traders from selling and create artificial shortages.

As supply dries up, demand intensifies, fuelling informal markups and the rise of black-market channels. When official price ceilings make open retail trade unprofitable, rice quietly flows through backdoor networks where millers, wholesalers, and retailers sell keeri samba at inflated prices. The result is a system where a handful of well-positioned players — those with the means to buy, store, and distribute — reap windfall profits while ordinary consumers face higher prices and fewer choices. In the process, transparency and trust in the rice market erode, leaving the illusion of control but little real stability.

The distortions extend to imported rice as well. A recent gazette introduced price caps for various imported varieties in response to the keeri samba shortage. But such ceilings, imposed without easing import restrictions or cutting tariffs, only worsen scarcity. Traders cannot import or sell at controlled prices when costs exceed the mandated ceiling. To make matters worse, the government often lacks the data needed to determine the true selling price, resulting in arbitrary controls that miss the mark. Ultimately, the persistent shortages of rice — across all varieties — are not a reflection of agricultural failure, but of regulatory misalignment that rewards market manipulation over genuine efficiency.

The keeri samba shortage is not merely a story of poor harvests, but of systemic policy distortions that undermine market responsiveness. By favouring uneven seed paddy distribution and enforcing rigid price controls, the government has created a rice market that ignores both consumer demand and production realities. At the same time, limited data transparency allows well-positioned players to exploit information gaps, while ordinary consumers face recurring scarcities and soaring prices. To restore stability, policy must shift from control to coordination, investing in variety-specific data, liberalising pricing, and fostering competition across the value chain, so that the rice market serves both farmers and consumers efficiently.