Do rice mill owners hide rice?

It is a popular story that there is a mafia of paddy mill owners in Sri Lanka, and that during the harvest, the paddy mill owners buy the paddy at a junkyard and then turn it into rice and sell it at a high profit. Although this story is a story of the "common people" and not a story of the Compass, the Compass has carried this popular idea for a long time. It should be recalled here that the traditional political camp opposite the Compass has also more or less stood for this idea.

Someone who has knowledge of market operations and related basic principles does not need to go with the army and inspect the paddy mills to understand that this cannot happen. Data on paddy production and rice consumption does not need to be 100 percent accurate. The answer can be easily found by observing market prices alone.

However, in order to observe market prices in this way and find the answer to the above question, one must either be able to think abstractly to some extent. Or one must "believe" the theories of economics. However, someone who can understand the relevant theories should not believe them. Someone who has not mastered the ability to think abstractly and does not believe in economic theories needs concrete observations to know the real situation. For some, confirmation from someone they can trust may be sufficient.

President Anura Kumara Dissanayake, a very skilled public communicator, has explained very well and briefly why paddy mill owners do not hide paddy stocks. The video posted with this is his explanation.

The most important thing for a country to move forward is to be armed with as much knowledge as possible. Accordingly, it is commendable that President Dissanayake has absorbed the correct knowledge related to this in a short time and educated others.

Here, President Dissanayake does not give the following type of answer.

"We went and checked. Paddy mills have not hidden stocks."

The above type of answer can be described as a political answer. Such an answer may confirm that there is no such problem at the moment. However, such an answer does not provide a general answer to the question. Even if the paddy mill owners are not hiding stocks at the moment, the idea that they usually do so remains. However, President Dissanayake gives a more abstract, and therefore more accurate and general answer.

However, even after President Dissanayake's explanation, one of the announcers asks a question along the lines of "Did you go inside the paddy mills and check and confirm?" This shows where the announcers in Sri Lanka are. Perhaps that announcer asked that question on behalf of the "common people" of Sri Lanka, representing them.

This question was recently raised by a personal friend of mine and got me into an argument (I usually only get into such arguments with very good personal friends, so this rarely happens). He is an active compass activist and an expert in his field. But he had no idea about the basic concepts of economics.

A rice mill owner does not have the ability to increase the price of rice at will. Although the demand for an essential consumer product like rice is quite inelastic, it is not a perfectly inelastic demand. That is one thing. On the other hand, there is no complete monopoly in the supply side of the rice market in Sri Lanka. There is significant competition. In a way, both of these things happen in the same way and a rice mill owner can determine the price as he pleases (hypothetical), a businessman does not increase his profits by increasing the price of a product as much as possible. He does it by increasing turnover. Price is only one factor that increases turnover. Holding unsold paddy stocks often results in a loss for a paddy miller.

In Sri Lanka, intermediate paddy millers do more than just mill paddy into rice. They also store and distribute the paddy.

As President Dissanayake explains in this video, in order to maintain the quality of the rice, paddy stocks have to be stored for about two months (I am of the opinion that this may not affect all types of rice in the same way). In addition, depending on the nature of the paddy supply in Sri Lanka, paddy has to be stored for up to six months. That is the time between two paddy harvest seasons.

Storing paddy is a costly task. Paddy is stored as own or borrowed money. If the loan interest rate is considered to be 10%, then 5% interest has to be paid for a period of six months. Therefore, keeping the purchased paddy for a long time without making rice means increasing costs day by day. In addition, there is the cost of keeping paddy safely in storage. Under these circumstances, it is expected that any paddy miller will convert his paddy stock into rice and sell it before the next season's harvest. This is explained briefly by President Dissanayake.

When in opposition, you can run with the deer and hunt with the wolves. But when in government, you can’t do that. Finding solutions that can please various groups, including consumers, paddy farmers, small paddy millers, etc., is not an easy task. Since assuming office, Anura Kumara Dissanayake has improved his understanding of market functioning. It seems that his knowledge and understanding, especially with regard to the rice market, is set to improve even more in the next six months to a year. Understanding the trial and error method in the abstract is a good way to understand difficult things.!

(Economatta)