Price controls and shortages

Monday, 9 November 2020 01:12 -     - {{hitsCtrl.values.hits}}

The Government recently slapped price controls on rice, promoting worries of shortages and a surge in black market sales. Given seasonal shifts of availability and inflation, it is concerning that the Government has little recourse but to return, time and again, to price controls. 

It is ironic that key politicians of the Government talk about self-sufficiency in rice but Sri Lanka frequently faces price issues, accusations of hoarding, and market shortages. Cleary Sri Lanka has supply chain issues that need to be fixed, and these often impact both producers and consumers. 

Typically policy discourse on food security only centres on self-sufficiency, which is an archaic principle that sounds attractive as a political slogan but does little to address the complexity of market challenges. Despite Sri Lanka aiming to be self-sufficient in rice, there has always been a longstanding issue on how the market functions. Mill owners have been faulted for controlling prices and creating artificial shortages and essentially acting as an oligopoly. This defeats the decades of investment done by the farmers and fertiliser subsidies given at taxpayer cost.

Such issues are not limited to rice. Other essentials, from chicken to spices, have been hit by shortages and price hikes, complicated by the import ban placed by the Government and issues, such as climate change, that have seen coconut prices skyrocket in recent weeks. The Government, aware that even with two-thirds majority in Parliament, its popularity will prove transient if cost of living is not controlled, has responded by placing maximum retail prices on a range of items. However, this only serves to complicate market issues and does nothing to prevent future shortages. 

To resolve many of these matters, Sri Lanka needs to invest heavily in infrastructure and technology. Other countries use cooled warehouses, databases, new seed and fertiliser varieties to increase productivity and to produce year-round. 

In Sri Lanka, the dependency on rain is massive, which has left an entire sector and the livelihoods of millions of people exposed to climate change. In other parts of the world, the expansion of new irrigation methods, vertical farms, and better transport systems are increasing productivity and sustainability of agriculture. These measures gave farmers better ideas of what to plant and when, and provide better market access and price security. It also reduces gluts that result in the market being flooded with one product, which has fewer buyers.

Reforming the agriculture sector should also target an increase in exports, as that would increase revenue and improve productivity. The agriculture sector is also struggling with an ageing population, with younger people preferring to work in other sectors. The brain drain is problematic, as technology infusion and other reforms require training that can be better accessed when there is also a younger and more educated workforce available. Unless these and other challenges are fixed, the spiking of food prices will never be adequately tackled. 

Traditionally, State involvement produces uneven benefits, favouring farmers with financial resources of their own, with access to more land and with some formal education. The majority of resource-poor farmers are excluded from public support for agriculture, with infrastructure and institutional frameworks designed for the minority to benefit. 

The Government has to make sure funding is used to reach as many people as possible, and it becomes the start of a larger sustained program of agriculture modernisation and food security. To build robust food supply chains, the data gaps and contract-enforcement problems need to be addressed. These are the productive interventions that will ensure food security, not the repetition of sporadic market control.