Identifying the need to address existing, controlling oligopolies in paddy markets, the Ministry of Economic Reforms and Public Distribution under the guidance of Minister Harsha de Silva took the initiative to introduce Shakthi rice to the market on March 30 2019. Shakthi rice, however, is not a mere resisting mechanism against controlling oligopolies but is the result of a series of efforts taken by the Government to resuscitate the small and medium scale mill owners, thereby protecting the small scale farmer and the consumer burdened by exorbitant rice prices.
The Government announced earlier this year that it will disburse an interest-free working capital loan of Rs. 1 billion to small and medium scale mill owners to purchase paddy, mill it and resell to cooperative networks island-wide. This new scheme is implemented with the participation of the All Island Rice Producers Cooperative Societies where Small and Medium Scale (SME) rice millers have been organised into government funded cooperatives across eight key Districts. The Government will provide these cooperatives with funds and they will release money under an agreement to their member millers. The millers will utilise the funds to purchase paddy from farmers, mill it and resell it to the cooperatives. The cooperatives will sell it to the consumers. Shakti rice was introduced to the market under this cooperative network enabling the cooperatives to enter into the national rice supply chain. In the fragmented rice supply chain the country was experiencing in the last few years the cooperative sector was on the rice distribution end. With this initiative the government has been successful in revolutionising the rice supply chain by allowing the cooperatives to step into the process of supplying, taking away from the control of the oligopolies.
Guaranteed price
The guaranteed price by the Government to purchase paddy from the farmer is between Rs.38/-(White Nadu) to Rs.41/- (White Samba). However, if the miller was purchasing the paddy at this guaranteed price the selling price should ideally be 2.1 times from the purchase price which has Rs.80/- Rs.85/- as maximum price. Despite this government regulation, the consumer had to bear the burden of rice being sold at the exorbitant price of Rs.114/- to Rs.120/- until May 2019 due to oligopolies determining the price. With the introduction of Shakthi rice at a price ceiling of Rs.80/- per kg (white Nadu) and Rs.85/- per Kg (white Samba) leading rice millers were forced to reduce their prices to Rs.90/- Rs.95/- per kg, further facilitating the reopening of closed mills belonging to SME rice millers and recreating competition that was lost in the oligopolistic structure. Minister Harsha de Silva stated that the introduction of Shakthi rice or the loan of 1 billion rupees is not an interventionist attempt, but an attempt to rejuvenate the small and medium scale mill owners to help both the farmer and the consumer and put in place a set of policies where the Government can rectify market failure without creating a government failure.
Shakthi rice benefits the farmer in many new ways. It is generally believed that big, medium or small scale, all rice millers exploit the price taking farmer . In an oligopoly, except a handful of millers, the rest are in strong competition. Given this strong competition, the SME millers would not exploit the farmer as they need to coexist and cooperate in battling the pressure exerted by the large scale millers. Realising this exploitative cycle in the paddy value chain the Government identified the need to level the playing field between the SME rice millers and the large scale rice millers and intervened to strengthen the SME millers while ensuring that the farmer is not exploited by the strengthened SME rice millers or even further exploited by large scale rice millers.
Under the new scheme, the Government has given a new opportunity for SME millers to rally under a cooperative system ensuring that the farmer has regained their lost bargaining power. In the previous oligopolistic market, the farmer had no bargaining power as the majority of farmers are small scale operators.
The price taking farmer was left with little to no chance of making a profit due to the extremely high cost of production. Simultaneously at the point of production, the farmer had unbearable debts due to financial commitments made on credit basis on harvesting machinery, fertiliser, seeds and other necessities got from informal credit agents, most commonly. This leaves the farmer with little room to delay the selling process and no choice but to succumb to low purchase prices offered by large scale millers.
With the revival of the SME millers, the farmer now has the opportunity to bargain as the SME millers are strengthened under a large cooperative group and able to offer farmers a competitive price against the purchase prices of large scale millers. This further improves healthy competition that was almost non-existent in the previous oligopoly. Shakthi as a monitored brand ensures a guaranteed price of Rs.38/- to Rs.41/-per kg further lessening the chance of the farmer being exploited.
Cooperative system
The introduced cooperative system is embraced by the strained SME millers as it presents the millers with a new protective system of operation. This concept of a co-operative system was built on the Cabinet decision taken on July 31, 2018, to provide credit facilities to SME millers through the MCF (Miller’s Cooperative Federation) and not to take legal action against SME millers who have failed to settle previous loans. Building on this and developing the cooperative sector towards rice-producing, the Government has revolutionised the paddy value chain while protecting the SME millers. For the first time, small millers are given the opportunity to rally under a district-based cooperative society for crucial loans, without resorting to unofficial credit lenders.. The 8 district societies are autonomous but are also subordinate in hierarchy to the District Secretariat through which millers receive and repay their loans.
Thus, SME millers can rally under eight district co-operative societies bound by a collective identity and an end goal results in the SME miller having a stronger bargaining power. These eight cooperatives are monitored by the Assistant District Co-operative Commissioner or the Assistant Divisional Co-operative Commissioner as relevant. These two bodies also assess the working capital loan requests made by SME millers through co-operative societies.
Financial assistance to mill owners is provided under the supervision of the District Co-operative society to whom the approved loans are passed down from the Treasury which allocates the loan of Rs.1 billion via the Ministry of Agriculture to District Secretaries who in turn liaise with the Assistant District Co-operative Commissioners. This co-operative mechanism offers SME millers a competitive price and the ability to work with a common brand name.