ECONOMYNEXT – Sri Lanka will change the law of a state commodity trading company to allow it to license competitors, a government statement said, after import bans, high taxes and price controls created shortage of rice in the country.
The governing law 54 year old of the state-run Paddy Marketing Board Act would be immediately revised “to introduce a licensing methodology to monitor irregular paddy and rice stocks collection and storing which has been recognized currently as an issue.”
The Paddy Marketing Board was set up in 1971, when US macro-economists printed money, broke the Bretton Woods system and fired global commodity bubbles, including in food and energy. Rising oil prices was called the ‘oil shock’.
As the Paddy Marketing Board was set up Sri Lanka closed the economy with severe import controls. In 1973 as the Smithsonian agreement collapsed, the US banned the export of soybean and cottonseed as prices of so-called ‘feed grain’ soared.
In June 1973, soybean for July delivery rose close to 13 dollars a bushel, about 300 percent higher than a year earlier, and Nixon slammed an export embargo. In February 1973, the Smithsonian Agreement, the last attempt to maintain the Bretton Woods had collapsed with gold prices at 90 dollars an ounce.
Before macro-economists started to print money for growth in the 1960s, gold prices were 35 dollars an ounce.
Sri Lanka was crippled by food shortages and black markets, as severe economic controls were put in place and children starved.
In 1973 as the Smithsonian collapsed and grain prices soared, as macro economists printed money in the US and elsewhere, Sri Lanka started the Thriposha program as a nutritional supplement made with USAID.
The current steep rise in rice, amid 1970s style import controls which were re-imposed some years ago to promote ‘self-sufficiency’, also comes after a bout of liquidity injections and soaring imports of other products in December.
Sri Lanka’s Nadu (par-boiled) rice prices started to go up after October and the government imposed tight price controls in December with red rice prices lower. However data show that in lean years in particular, red rice prices move above Nadu.
Over-consumption of red rice which is inevitable due to artificially low prices, including possibly for animal feed due to a price controls then led to rapid run down of already depleted stocks, and then a black market as price controls were imposed by the Consumer Affairs Authority.
Some government officials, instead of holding the price controls accountable for the crisis, blamed ‘hoarders’ or small collectors, who have been active in the business for several years without any problem.
With the Paddy Marketing Board giving licenses to rivals, it will become the state player and also the regulator of rivals in the sector, analysts say. (Colombo/February 11/2025)
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