Paddy Purchase and Rice Control Price: A Contradiction in Government Policies?

On February 5th, the government announced the prices at which the Paddy Marketing Board would purchase paddy from farmers. According to the announcement, the government will purchase Nadu paddy at Rs. 120 per kilo, Samba paddy at Rs. 125, and Keeri Samba paddy at Rs. 132 per kilo.

In a previous announcement, the government also set rice control prices, with Nadu rice priced at Rs. 230 per kilo, Samba rice at Rs. 240, and Keeri Samba rice at Rs. 260. The government has claimed that it will purchase paddy from farmers with a 30% profit margin. However, upon closer examination, it becomes clear that there are significant contradictions between the government’s paddy purchase prices and the rice control prices, particularly when accounting for production and processing costs.

The Discrepancy Between Paddy Prices and Rice Control Prices

The conversion of paddy into rice yields approximately 65% to 70% of rice, with the remaining 30% to 35% consisting of by-products such as husks and bran, according to the Batalagoda Rice Research Institute. Based on this, let’s analyze the example of Nadu paddy and its conversion into rice.

Paddy Procurement Price

The government has set the purchase price of Nadu paddy at Rs. 120 per kilogram. However, when considering the rice control price, the government has fixed the price for Nadu rice at Rs. 230 per kilogram. This poses a significant challenge for millers, especially when factoring in the production and processing costs.

Rice Yield and Processing Costs

For every kilogram of paddy processed, approximately 0.65 to 0.7 kilograms of rice are obtained. The combined cost of milling, packaging, and transportation is estimated at Rs. 15.02 per kilogram of rice. This includes Rs. 10.52 for milling and processing, Rs. 2.50 for packaging, and Rs. 2.00 for transportation to Colombo.

As per the 2022 statistics, the total cost of producing one kilogram of rice comes to approximately Rs. 229.62 (Rs. 184.62 for paddy + Rs. 15.02 for processing). Given this, it is clear that selling Nadu rice at the controlled price of Rs. 230 per kilogram does not even cover the costs of production, let alone generate any profit. This reveals a major flaw in the government’s pricing policy, as millers are unable to sustain their businesses under such circumstances.

The Claim of 30% Profit for Farmers

The government claims that it will purchase paddy from farmers with a 30% profit margin. For Nadu paddy, the government’s purchase price of Rs. 120 per kilogram supposedly includes a 30% profit for farmers, which means that the approximate cost of production for the farmer is Rs. 92.31 per kilogram.

However, various reports on the cost of paddy cultivation show that the actual cost of producing paddy exceeds Rs. 92.31 in most areas. For example, in Ampara-East, the unit cost of paddy production during the Maha Season of 2021-2022 was Rs. 17.91 per kilogram, and in Kandy, it was Rs. 49.29 per kilogram. Even in Kegalle district, where the average cost of production was Rs. 15.23 per kilogram, it is clear that producing paddy at the government’s stated cost is unfeasible. To achieve such a low production cost, significant subsidies, cost reductions, or more efficient farming methods would be required.

The Impact on the Rice Market

The discrepancy between the government’s announced paddy purchase price and the rice control price could lead to instability in the rice market. While the government claims that it is purchasing paddy at a 30% profit for farmers, the actual cost of production and processing reveals that these prices are not realistic. Furthermore, millers are finding it increasingly difficult to sell rice at the control price, given the rising production costs and limited profit margins.

In conclusion, the government’s paddy purchase prices and rice control prices are contradictory and unsustainable, potentially leading to economic difficulties for both farmers and millers. The discrepancies highlight the need for a more balanced and feasible approach to pricing in the agricultural sector to ensure that all stakeholders, including farmers, millers, and consumers, are supported fairly.

References:

1. FAO (Food and Agriculture Organization) - Information on the conversion of paddy to rice, which typically yields 65% to 70% rice, with the remaining 30% to 35% being by-products like husks and bran. Source: FAO - Rice Processing
2. Sri Lanka Department of Census and Statistics (2022) - Statistical data on the cost of milling, packaging, and transportation of rice, with an estimated total cost of Rs. 229.62 for producing 1 kg of rice (including both paddy cost and processing). Source: Sri Lanka Department of Census and Statistics
3. Department of Agriculture, Sri Lanka (2018) - A report detailing the unit cost of paddy production across various districts in Sri Lanka. For instance, the unit cost in Ampara-East was Rs. 17.91 per kilogram, and in Kandy, it was Rs. 49.29 per kilogram.Source: Cost of Cultivation of Agricultural Crops (2018)
4. HARTI (Agrarian Research and Training Institute, Sri Lanka) - A study detailing the average cost of producing one kilogram of paddy in the Kegalle district during the Maha Season of 2021-2022, which was Rs. 15.23 per kilogram.Source: HARTI - Cost of Rice Production (2021-2022)