Jan 14, 2010 (LBO) – A Sri Lankan state trading firm has imported a stock of rice from Pakistan as domestic prices shot up in a market mired in heavy handed state intervention. Shops run of supplies, a situation known as a ‘shortage’ in economic terms, happens only when there are price controls. Without government interference, prices would spike and then settle as supplies, imports or other stocks come back to the shelves.
A ‘black market’ where stocks are sold at higher than the controlled price, happens only with government intervention.
In the third quarter of 2009, the paddy sector had contracted 28.4 percent, according to the government’s statistics office.
Sri Lanka imposed price controls in mid 2008 amid a so called ‘food crisis’ in the world.
Sri Lanka’s rice prices have been kept at the so-called ‘food crisis’ levels in 2008 to help a powerful rice milling lobby, and politicians who are chasing farmer votes. International rice prices fell around 40 percent after the global commodity bubble burst in mid 2008.
Sri Lanka’s rice market is mired in heavy handed government intervention. The government blocked imports by a 25 rupee a kilo tax.