Rice is the main staple food in Sri Lanka. This main crop is cultivated as a wetland crop in all districts. The total land devoted to paddy cultivation is estimated to be about 708,000 hectares at present (Department of Census and Statistics, 2024). There are two cultivation seasons namely, Maha and Yala which are aligned with the two monsoons – Maha, with the North-east monsoon from September to March, whilst the Yala season is effective during the period from May to August. Although paddy is normally sown and harvested during these particular seasons, nevertheless due to several reasons paddy is uncultivated such as shortage of water, prevailing unsettling conditions on the ground, shortage of fertilisers and weak agrarian management information for farmers. Paddy extent namely, aswaddumized, sown, and harvested on a complete enumeration basis was commenced in 1951. Paddy production estimate for each season is a product of the acreage harvested and the average yield. Moreover, the average yield of paddy in Sri Lanka at the district level is estimated by employing a sample survey which is popularly known as the crop cutting survey initiated with the assistance of the Food and Agriculture Association (FAO) in 1951. At present a sample of 3,000 villages for the main season (Maha) and 2,000 villages for the second season (Yala) are selected to carry out experiments (Department of Census and Statistics,2024).
Determinants of rice price
Supply, demand, and price are the three key recurrents in economics. In any market transaction between buyers and sellers, the price of the good is determined by the supply and demand in the market. Economists have established models to explain the various market types. In the Sri Lankan context the rice market, most properly aligns with an oligopoly market. In Sri Lanka, the rice market is a prominent market example of oligopoly, where a small number of large-scale rice millers control the market due to their potential to influence price and production to significant market share. According to this situation, we need to understand the how an oligopoly market takes control of the rice market.
Oligopoly power in the rice industry in Sri Lanka
An oligopoly is a market where a small number of firms control the market. The main characteristic of the market is that no one firm can keep others from having significant influence over the market. The rice and paddy industry in Sri Lanka is highly specific and the anti-competitive action of leading millers is prominent. This situation creates uncertainty and reduces the market share of small and medium-scale millers resulting in making them vulnerable to market forces; consumers and producers (Bandara, Samaraweera and Gunawardana, 2023). In the Sri Lankan context, Prasanna (2018) and Wijesooriya et al.,(2021) said, a few politically backed large-scale mill owners control the industry with their huge amount of market share, storage facilities, sophisticated technology, easy access to credits, and political patronage. According to Thibbotuwawa (2021), these kind of anti-competitive practices by large-scale millers can create an artificial situation of rice scarcity and earn an excessive profit which harms paddy producers and consumers and small and medium-scale (SMS) millers. The price of rice is determined by availability in Maha and Yala. A lower market price can be observed in the prices of both paddy and rice every harvesting period (Thibbotuwawa, 2021). This lower Market Price (MP) is unable to recover the costs and sell the harvest just after the harvest season (Wickremasinghe et al., 2016; Prasanna, 2019). In contrast, the prices of rice have increased during the off-season. These issues in the paddy and rice industry negatively impact the food security of the country. Most scholars agree that the Sri Lanka paddy and rice industry is controlled by a few large-scale millers who have 30 per cent of the market share (Bandara, Samaraweera and Gunawardana, 2023).On the other hand, these leading millers caused anti-competitive actions such as price discrimination and the artificial creation of rice scarcity, while earning an excessive profit which may be due to their opportunistic actions. Under these circumstances, Small and Medium Scale (SMS) millers, consumers, and producers suffer. Further, investment in the milling industry is highly specific, and an appropriate governance mechanism is needed to reduce the transaction cost in the rice milling industry. Currently, leading players in the industry adopted vertical integration of their functions such as purchasing, storing, processing, whole selling, and retailing which leads to business success. Hence, transaction costs should be minimised due to opportunism-related issues, and bounded rationality issues (Bandara, Samaraweera and Gunawardana, 2023). During the off-season SMS millers continuously supply their rice to reduce the market price benefitting consumers. In the case of a rice deficit, imports are to be carried out only to minimise the deficit in the market. As a result of this excess imports will disturb the industry’s performance. Moreover, SMS millers should adopt a vertical integration approach to maintain an input supply of paddy for continuous operation and the sale of rice. However, during the COVID season, most SMS millers shut their operations and thousands of SMS miller owners permanently closed their operations because entry into the industry was very difficult for them in the prevailing economic crisis of the past years. Due to this situation market power deviated to the leading millers and price control completely went to the leading millers. This has led the Government to give incentives to the SMS millers to commence their operations again and reduce the market power of the leading millers.
Measures
Due to incidents of inflation and agricultural challenges, countries often resort to price regulation as a means of ensuring food security and economic stability. By regulating the price of staple goods like rice, Governments can make essential items more affordable for low-and middle-income households, mitigate the risk of price gouging, and provide fair compensation to local producers. Price ceilings, which impose a maximum price on goods, help prevent excessive price hikes, protect vulnerable populations, curb inflationary pressures, and promote social equity. In addition, consumer protection laws are crucial in safeguarding consumers’ rights, particularly during economic crises, by regulating pricing, preventing exploitation, and discouraging black market activities. These laws ensure that goods are sold at reasonable rates, stabilise the market, foster trust, and contribute to social stability and fairness during difficult economic periods.
Sri Lankan situation
In response to the ongoing challenges of oligopolistic control and market manipulation in Sri Lanka’s rice industry, the Government has implemented a range of regulatory measures aimed at stabilising the market and protecting both consumers and producers. As mentioned by Weerasinghe (2025), “In December 2024, the Government set a maximum retail price for rice to ensure affordability for consumers. The Consumer Affairs Authority (CAA) was tasked with monitoring compliance and taking legal action against non-compliant rice mill owners. The Government provided low-interest bank loans to traders to purchase paddy to encourage fair competition and prevent monopolistic practices. The CAA was instructed to closely monitor daily rice production and distribution by mills, ensuring adherence to regulations and preventing price manipulation.” Further, as reported by (LANKA NEWS WEB, 2025) the Sri Lankan Government is restructuring the Paddy Marketing Board (PMB) to support farmers and stabilise rice prices amid ongoing market challenges. The PMB, burdened with a Rs 28 billion in debts, will now directly purchase paddy from farmers at guaranteed prices, eliminating inefficiencies and market manipulation. Under President Anura Kumara Dissanayake’s directive, the PMB will upgrade storage facilities and involve small-scale millers in rice production. The Government plans to cultivate 1.3 million hectares of land during the Maha and Yala seasons to increase rice production and curb excessive profits by large-scale millers. Despite efforts, inefficiencies within various sectors still hinder progress. To counter this, the Government plans to purchase 300,000 – 400,000 metric tonnes of paddy in the 2024-25 Maha season for distribution through cooperative networks like Sathosa, aiming to challenge the dominance of large-scale millers. While Sri Lanka consumes 6,500 metric tonnes of rice daily, the PMB’s recent intervention saw only 119 metric tonnes purchased last season. Expanding storage capacity to 400,000 metric tonnes could improve stock management and price stability. Market manipulation, rather than supply shortages, is the primary cause of rice scarcity. To address shortages, the Government will import 70,000 metric tonnes of Nadu rice, priced at Rs 220 per kilogram, with imports that began on 15 December. Sri Lanka produces 3.53 million metric tonnes of rice annually, but surpluses and redirection, such as rice for arrack production, contribute to supply issues. Rice production costs Rs 25 per kilogram, while retail prices have surged to Rs 220. Government intervention is expected to lower prices to Rs 150-160. The revival of the PMB is crucial for small and medium-scale millers, many of whom have shut down due to debt, leaving only 700 mills in operation.
A way forward
While the Sri Lankan Government’s current efforts, such as price controls and the restructuring of the Paddy Marketing Board (PMB), are essential for addressing the immediate rice market crisis, they must contend with deeper, more entrenched issues, including the significant influence of large millers within an oligopolistic market structure. These millers, with their concentrated control over the market, pose considerable challenges to ensuring fair competition and price stability. Empowering small and medium millers through credit access and cooperatives offers a promising long-term solution, but overcoming the resistance from larger players in the sector will be difficult. Strengthening market transparency, improving regulatory oversight, and addressing anti-competitive practices are crucial, but the limited resources and political challenges in confronting powerful market players may slow progress. While the Government’s measures can create a foundation for stability, achieving lasting success will require tackling these challenges head-on and balancing immediate interventions with comprehensive, long-term reforms. The path forward will demand a strategic approach to dismantle the influence of large millers and build a more competitive, transparent, and sustainable rice sector. Moreover, there is the need to address the issues of SMS millers who closed their operations during Covid and the crisis time. When they come back to the industry, the present anti-competitive market structure will lead to a competitive market and consumers and producers could satisfy their needs and wants at a competitive price. This kind of solution is more cost-effective and the Government can effectively handle the market without any bias.
About the writers
Charani L.C.M. Patabendige is a Research Assistant and an Acting Research Analyst of the Institute of National Security Studies (INSS) and the Ministry of Defence. H.W. Thisuri Jayathma is a Research (Intern) at the INSS. The opinions expressed are their own and not reflective of the Institute or the Ministry)