Sunday Times 2
The rice price trap: How maximum price controls create shortages and suffering
View(s):By Panduka Keerthinanda
The imposition of maximum retail prices on rice, the nation’s staple food, has triggered a complex economic instability characterised by market distortions, supply shortages, and unintended social consequences. This article examines the multifaceted impacts of price controls through empirical evidence and economic analysis, drawing on recent data and historical context.
The findings reveal that while intended to protect consumers, price ceilings have consistently produced adverse effects, including black market proliferation, rice miller losses, and reduced food access for vulnerable populations. The study concludes that sustainable solutions require moving beyond price controls toward market-oriented reforms and investments in agricultural productivity to ensure long-term food security.
Ironically, the worst affected by the rice-price control are the poor
Sri Lanka’s staple diet
Rice represents more than just a commodity in Sri Lanka; it is a staple food providing 45% of all calories consumed by the average Sri Lankan and accounting for 34% of the country’s total cultivated area. With annual per capita consumption exceeding 181 kg, Sri Lanka has the eighth highest rice consumption rate globally. This deep cultural and nutritional significance makes rice affordability a politically sensitive issue, prompting successive governments to intervene in the market through price control mechanisms.
In December 2024, the Sri Lankan government, through the Consumer Affairs Authority (CAA), imposed maximum retail prices on various rice varieties, setting the price of Nadu at Rs. 230 per kg, Samba at Rs. 240 per kg, and Keeri Samba at Rs. 260 per kg. Similar price controls were instituted for imported rice varieties. These measures were intended to protect consumers from price spikes during a period of perceived shortage and potential hoarding by millers. However, historical experience and economic theory suggest that such interventions often produce consequences contrary to their intended purposes.
The findings, based on recent data and historical context, demonstrate how price controls have contributed to market distortions, reduced supply, and worsened food insecurity. The analysis concludes with recommendations for alternative policy approaches that could achieve the goal of affordable rice without disrupting market mechanisms.
Historical rice price controls
Sri Lanka has a long history of government intervention in the rice market, with price controls dating back several decades. In April 2019, the government set maximum retail prices at RS 80 per kg for Nadu rice and RS 85 per kg for Samba rice. These controls were implemented despite market prices that were significantly higher—RS 112 for Samba rice and RS 94 for white Nadu in January 2019—indicating the government’s persistent concern with maintaining affordable access to the staple food.
The recent controls continue this tradition. In December 2024, the government declared control prices for rice amid shortages and possible hoarding, setting the wholesale price of Nadu at Rs. 225 per kg and retail at Rs. 230 per kg. The government simultaneously warned of “strict actions” against rice mill owners who failed to comply with the fixed prices.
This historical pattern reveals a cyclical approach to rice market regulation, with controls typically imposed during periods of price volatility or perceived crisis.
The persistence of price controls despite their documented problems suggests that political considerations often outweigh economic rationality in Sri Lanka’s rice policy. As noted by the Advocata Institute, “Sri Lanka’s rice market is crumbling under the weight of contradictory government policies.”
This historical context is crucial for understanding why price controls continue to be implemented despite their consistent failure to achieve intended outcomes.
Economic impact of price controls
The immediate effect of maximum price controls has been the creation of artificial shortages throughout Sri Lanka. When the government set the maximum retail price for raw red rice at Rs. 220 per kg, the variety virtually disappeared from formal market channels. The shortage emerged because the controlled price was significantly below the production cost of about Rs 235 per kg for white Nadu rice. With millers unable to cover their costs, much less turn a profit, they had no incentive to continue production at previous levels. The fundamental issue lies in the disconnect between controlled prices and production costs.
According to data from one of Sri Lanka’s largest rice millers, the cost breakdown for producing 1 kg of White Nadu rice in December 2024 was as follows: paddy purchase (Rs 122), storage (Rs 38), conversion (Rs 37), and other costs (Rs 38), totalling Rs 235. With the government mandating a wholesale price of Rs 225, millers incurred losses of Rs 10 for every kilogram sold, creating a disincentive structure that inevitably reduced market supply.
Black market
As legitimate market channels dried up due to price controls, illegal markets inevitably emerged to fill the vacuum. The CAA itself acknowledged that red rice was being sold in black markets for about Rs. 310 per kg—41% above the government-controlled price. Even more strikingly, an Agriculture Ministry official stated that “Sri Lanka has red rice stocks, but they are only sold after 5 p.m. when the Consumer Affairs Authority officials go home after their day’s work.” This admission highlights how price controls create perverse incentives that push economic activity into unregulated channels.
The emergence of black markets represents a rational response to price signals that are artificially suppressed through government intervention. When legal markets cannot clear at controlled prices, meaning supply does not meet demand, those willing to pay higher prices seek alternative sources. Similarly, suppliers willing to risk penalties for violating price controls can earn substantial premiums in black markets. This dynamic ultimately harms consumers who cannot access black market prices while simultaneously undermining respect for the law.
Impacts on supply chain disruption
Rice millers, particularly smaller operations, faced severe financial pressures under the price control regime. With production costs exceeding mandated selling prices, many millers were forced to halt operations or reduce production significantly. This created supply chain disruptions that extended from farmers to consumers, as millers reduced their paddy purchases from farmers and limited daily rice releases to stretch supplies until the next harvest season.
The situation was particularly challenging for small-scale millers who lack proper climate-controlled storage facilities. These operators often run out of stock completely before the next harvest, leaving larger millers with greater market dominance and control over supply. Ironically, price controls intended to protect consumers from monopolistic practices often strengthen the market position of larger players who can better withstand temporary losses and who benefit from reduced competition.
Social consequences and food
security implications
Despite intending to protect consumers, price controls frequently reduce food access for the most vulnerable populations. As rice disappears from formal markets, lower-income households who cannot afford black market prices or travel to alternative sources face limited access to their staple food. This contradicts the stated goal of price controls to ensure affordable food for all and exacerbates rather than alleviates food insecurity.
The nutritional implications are particularly severe for children from poor families. As noted in one analysis, “Children of poor families in particular pay the highest price for high rice and other food prices.” When rice becomes unavailable or unaffordable, households may turn to less nutritious alternatives or reduce overall food consumption, potentially leading to malnutrition outcomes that have long-term developmental consequences.
Income effects across the supply chain
Price controls create winners and losers throughout the rice supply chain, often with perverse distributional consequences. While the policy intends to benefit consumers, the scarcity it creates means that many consumers cannot actually find rice at controlled prices. Meanwhile, farmers may receive lower prices for their paddy if millers facing squeezed margins reduce what they are willing to pay at the farm gate.
Some reports indicate that despite the government setting a minimum guaranteed price of Rs 120 for Nadu paddy, farmers in areas like Anuradhapura and Polonnaruwa were receiving only Rs 95-100 per kg just before the Maha season harvest. This suggests that large-scale millers may engage in collusive practices to depress farmgate prices, offsetting their losses from retail price controls. The ultimate result is a transfer of income from both farmers and consumers to middlemen who can navigate the distorted market environment.
Climate vulnerabilities and production uncertainties
Sri Lanka’s rice production faces significant climate vulnerabilities that complicate price stabilisation efforts. A 2025 study published in Scientific Reports found that climate change has decreased average rice yields by 5% compared to a scenario without climate change. Extreme climate events during cropping seasons are the main cause of low yield events that threaten national food security. The 2017 drought and subsequent production crisis illustrate this vulnerability. Rice production in 2017 was estimated to be 2.7 million tonnes, almost 40% less than the previous year’s production and 35% lower than the 5-year average. The yield reduction triggered price spikes that exacerbated national food security. Such production shocks make price controls particularly damaging, as they prevent market signals from encouraging increased supply through imports or conservation.
Import restrictions and policy contradictions
Compounding the problems created by price controls, Sri Lanka maintains a Rs. 65/kg import tariff on rice, making imported rice approximately 50% more expensive than it would be without the tax. This creates a contradictory policy environment where the government simultaneously tries to keep prices low through controls while keeping them high through tariffs, an approach that “defies economic logic and creates harmful market distortions.”
The import tariff structure means that even when domestic shortages emerge, imported rice remains expensive. For example, imported Nadu rice retails at Rs 220-225 per kg (with a Rs 215 landing cost), compared to Rs 140-150 without the tax, the price at which it retails in India. This policy contradiction reflects the government’s attempt to balance competing objectives: protecting consumers from high prices while protecting farmers from import competition. The result often fails both groups.
Institutional limitations
and enforcement challenges
Effective enforcement of price controls requires significant institutional capacity that may exceed what Sri Lanka’s regulatory agencies can provide. The Consumer Affairs Authority must monitor thousands of retailers across the country, conduct raids, and prosecute violators—a resource-intensive process that often yields limited results. The Deputy Minister of Agriculture’s admission that red rice is only sold after CAA officials go home illustrates the enforcement challenges.
These enforcement limitations create a patchwork compliance pattern where some retailers adhere to controls while others flout them, leading to market fragmentation and inequitable access. Consumers with more time, resources, and connections can find rice at higher prices, while others go without, the opposite of the equity outcome intended by price controls.
Alternative approaches, policy
recommendations and solutions
Rather than price controls, evidence suggests that market-oriented approaches would better serve Sri Lanka’s goal of affordable rice access. Removing or reducing the Rs 65/kg import tariff would allow international supplies to complement domestic production, stabilising prices without creating shortages. As one analysis notes, “Allowing low-tariff imports could help stabilise the market, ensure sufficient supply, and protect consumers from inflated prices.”
A sliding scale tariff that decreases during shortage periods could be particularly effective. This approach would allow imports to enter when domestic supplies are low while maintaining some protection for farmers during normal periods. The key insight is that trade flexibility provides a natural buffer against production volatility without requiring difficult-to-administer price controls.
Targeted social protection
For vulnerable households who struggle with food access even at normal market prices, targeted income support proves more effective than price controls. Rather than distorting the entire market, programmes such as conditional cash transfers or food stamps can help specific populations afford adequate nutrition without disrupting price signals. This approach allows markets to function efficiently while addressing equity concerns through direct assistance. Sri Lanka already has experience with various social protection programmes that could be adapted for this purpose. The challenge lies in ensuring targeting accuracy and delivery efficiency to minimise leakage while maximising coverage of truly needy households. When well designed, such programmes prove more cost-effective than broad price controls that benefit all consumers regardless of need while creating collateral damage throughout the supply chain.
Productivity investments
Long-term solutions to Sri Lanka’s rice affordability challenges require addressing productivity constraints in domestic production. Sri Lanka’s rice yields per acre remain below potential, reflecting limitations in technology adoption, input access, and cultivation practices. Investments in research and development, extension services, and irrigation infrastructure could boost yields, reducing production costs and ultimately consumer prices.
Accordingly to several experts’ findings, “Without a long-term strategy to increase Sri Lanka’s rice yields per acre and reduce production costs, consumers will continue to be forced to pay higher prices for their basic food due to political and cultural reasons.” The goal should be export competitiveness rather than self-sufficiency, as competitive producers can earn foreign exchange while supplying domestic needs efficiently. As Sri Lanka continues its economic recovery, evidence-based food policy will be essential for ensuring food security for all citizens.
The lesson is clear: “Resilience is not achieved through control, but through empowerment, empowering markets to function, farmers to produce, and economies to thrive on a foundation of stability rather than constraint.”
(The writer is an Attorney-at-Law.)