Making of a 21st century rice market

 Rather than being vassals to mill owners and other unscrupulous individuals who benefit and profit from their sweat, farmers could shed the traditional image and be masters of their own destiny – Pic by Shehan Gunasekara

By Dr. Sirimewan Dharmaratne

Price controls and guaranteed prices archaic economic policies that are inefficient and costly. These control measures are unlikely to eliminate current problems such as hoarding, buying below the guarantee price or selling above ceiling price. To enforce such policies considerable monitoring and enforcement is required, adding to the overall public expenditure. A self-regulating system that minimises the government involvement and promote efficiency.

Keeping with the President’s nascent initiatives towards increased digitisation and modernising the economy, there is an opportunity to make the rice market high-tech. The majority of the work that is required for this appears to be already up and running. The recently developed ‘Govipola’ app the by Technical Assistance to the Modernisation of Agricultural Programme (TAMPA) could be the provenance of a 21st century rice market in Sri Lanka. 

Digitising selling

Through this app, each farmer offers his/her expected yield by variety for sale. There is no need for a guaranteed price. Farmers offer harvest subject to a reservation price based on individual production costs and desired profit margins. For the same variety, prices would differ among farmers. 

Buyers would bid through a similar app or through a website set up for trade. All buyers need to register to access the website or use the app. They would then bid freely for available offers, unaware of the reservation price. Any bids below the reservation price would be automatically rejected. Bids above the reservation price would show up on farmer’s app and they are free to accept or reject or wait for a higher offer. To keep the identity of the farmers anonymous, each farmer will have an ID or a seller name as done in popular auction sites. 

Up to this point, there is no Government involvement. However, if the Government wants to do some sort of an allocation between large-scale millers and SMEs, it could implement a quota system. This will prevent the current issue of market monopolisation. After reaching individual or collective quotas, further bidding would not be possible. 

All sellers (farmers) who want to participate in this process need to register with the Department of Agriculture. While they are free to trade outside the programme, they would not have the protection of the Government in the event of any disputes. As an added incentive, they would also have limited access to other benefits such as subsidised fertiliser and credit, insurance protection, etc. if they trade outside the programme.

After the completion of the harvest, with the approval of the Agricultural Extension Officers, the website will update actual yields, signed off by the farmer. The buyer will know this information real time. At this stage, the government could allow further trading among buyers. If there is a shortfall in the yield for a particular buyer, they could bid from other buyers who are willing to sell their purchases. 

This promotes some efficiency that is lost in a quota system. All these secondary sales will also have to through the website to allow for transparency. The website will update the final allocations after the completion of this second round of trading. While the final allocation may be public information, public would not be privy to any financial transactions. 

Millers to wholesalers

Millers can sell rice only in barcoded packages. The code will identify the miller as well as other relevant information about the rice. It could even have information of the farmer (save for personal information) region, method of cultivation, fertiliser and agrochemical use for the benefit of the more discerning buyer. 

At the point of selling, the buyers scan and electronically sign for the purchase. The website records this information in real time. This will show how much stock is in the market and how much is with millers at any point in time. Wholesale buyers are required to keep tabs of sales to retail buyers or there can be another layer of electronic record. 

In this process, the Government only sets the final retail price by variety and season. This could be decided in consultation with millers, wholesalers and retailers nearer to the end of the harvest season. This will allow setting of more realistic retail prices. Existing conditions for each season, such as the weather, fertiliser prices, processing and transportation costs, will determine the market price. 

All those involved in the supply chain as well as the consumers will have complete information of the final retail prices. The salient factor of this process is that it minimises the involvement of the government and thereby reduce enforcement and monitoring costs. 

Further, only the most efficient traders would remain in the supply chain. It also promotes competition where millers and wholesalers would look for ways to reduce costs and likely to provide rice below the ceiling price. Farmers would also have incentives to innovate to minimise their costs. They would be aware if they lower the reservation price, they would be able to find buyers quickly.

Millers would directly pay through the website to the accounts of farmers who will see the payment on their app. The Government could hold these accounts notionally or in trust to ensure that correct amounts are paid, especially to those farmers who may not be tech savvy. The Government can also implement an insurance scheme deducing contributions from farmers and millers. 

Benefitting from the wide-scale use of smart phones, farmers are likely to master this technology quickly. Rather than being vassals to mill owners and other unscrupulous individuals who benefit and profit from their sweat, farmers could shed the traditional image and be masters of their own destiny.

(The author is a Senior Analyst at HM Revenue and Customs in the UK.)