Advocata’s analysis underscores how government-mandated maximum retail prices for rice, enforced by the Consumer Affairs Authority, force millers to sell below their production cost.

A recent study by the Sri Lankan thinktank, Advocata Institute, warns that Sri Lanka’s rice price controls – while designed to make rice affordable are instead undermining food security by creating chronic shortages and encouraging black markets. The policy think tank argues that decades of price caps and import tariffs have distorted the very market mechanisms meant to stabilise supply.

Controlled Prices Fuel Shortages and Rice Black Markets

Advocata’s analysis underscores how government-mandated maximum retail prices for rice, enforced by the Consumer Affairs Authority (CAA), force millers to sell below their production cost. For example, according to the think tank, producing 1 kg of white Nadu rice cost millers around Rs 235, while the capped wholesale price was just Rs 225, leading to losses on every kilogram sold.

These distortions lead many millers to reduce output or pause operations entirely, reducing available stocks. The shortage is particularly severe for red rice varieties; in some cases, the rice has simply disappeared from formal outlets, only to reappear in black-market sales at up to Rs 310 per kg, according to Advocata.

Data Gaps and Oligopoly Undercut Rice Market Stability

The study also highlights deeper structural flaws. Sri Lanka faces a chronic lack of accurate market data – especially consumption data by rice variety. Without disaggregated demand data, government efforts to manage supply are reactive, not proactive, say researchers.

Meanwhile, a handful of large-scale rice millers wield disproportionate power. With large storage capacity and capital, they buy up paddy immediately after harvest and release stocks strategically, influencing supply cycles to their advantage. This oligopolistic structure, combined with rigid price caps, discourages investments in storage, processing, and distribution – perpetuating instability rather than addressing it, Advocata Institute says.

Advocata Calls for Market-Oriented Reforms for Rice

In its recent commentary on the subject titled, ‘When Price Caps Backfire: Rethinking Rice Policy,’ Advocata proposes a shift away from rigid price controls towards a more coordinated, data-driven, and competitive market model. Key recommendations include: liberalising rice pricing, investing in variety-specific consumption and supply data, and breaking down concentration in the milling sector.

The think tank argues that by removing price ceilings and import restrictions, Sri Lanka can foster healthier competition, ensure more stable supplies, and align policy with real consumer demand – all while safeguarding the livelihoods of farmers.

Wider Implications for Rice Availability and Food Security

Advocata’s findings come at a critical time, as Sri Lanka continues to navigate post-crisis economic pressures. Although efforts such as a Rs 60 billion procurement programme by the Paddy Marketing Board (PMB) to stockpile paddy have been undertaken, these do not address the systemic disincentives created by price distortion.

By artificially capping prices, the government may be perpetuating inefficiency and instability, Advocata says, ironically, undermining its own goal of protecting consumers.