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Sri Lanka debate over inflation: rice price crisis

Jan 06, 2010 (LBO) - Rice, the staple food of Sri Lankans, is in short supply and its price is on the increase. At retail shops, many popular varieties of rice are not available. Rice available at controlled prices is of inferior quality. Free Market and Government’s Interventions

In a free market situation, such a crisis cannot last long. If there is a shortage, imports may flow in to fill the temporary gap in the market. In the medium term, the shortage will cause the prices to appropriately adjust so that the local producers are encouraged to step up production.

Hence, a rice crisis is, at most, a short term phenomenon.

But, the free market has not been allowed to function by governmental interventions and controls.

Hence, the current crisis is basically a government made crisis.

How was the crisis created by the government? It was through two conflicting interventionist policies, one to protect the farmer and the other to relieve the consumer.

To protect the farmer, the free importation of rice was prevented and a substantial tax was imposed on the imported rice to keep the local market prices high.

To relieve the consumers, the retail price of rice was controlled in the midst of

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