The latest insult to Lanka’s paddy farmers – export of rice

It was reported a short while ago today, April 18^th 2012, that the Secretary to the Ministry of Agriculture, KA Sakalasooriya, has announced the creation of four zones for export. One in each of Mannar for growth of Keeri Samba, Hambantota for growing red rice, (presumably long grain) and Polonnaruwa and Anuradhapura for growing BG 357 a variety of white rice. It was further announced that in the next Yala season this paddy would be purchased at Rs40/kg.

Why is this announcement insulting? He has no clue about rice farming, about yields on different soil and growing conditions, and on different varieties of paddy.

I have planted 6 varieties of paddy, and I have personally sold door to door, 14 varieties of rice arising from this paddy. I have also grown keeri samba a particularly fine grained white rice. Its yield is usually a lot less than other varieties and I have sold the rice for around Rs100/kg which is about what the price is for the par boiled variety even now. I like to say they look like ‘podi muthu ata’

Rs 40/kg is not enough to compensate for the lower yields. At this price I can buy the paddy, and mill it and sell it at Rs80/kg and still make a profit of Rs10/kg, after taking account of transport. A large miller will make a profit of Rs20/kg as he has other cost savings that I do not have as I pay a small miller to do so. Further I wish to reiterate that I grew Red basmati as an outgrower for CIC and lost a lot of money. I was promised Rs 42/kg for paddy, for rice they sell at over Rs150/kg.So I do not trust these statements.

I really suspect that if farmers produce paddy at this price for the quality that is required for export, it is the Miller who will make the profit again, as he has the market sown up, and all the Government is doing by making this promise is doing the bidding of the Millers who have given the Govt. an undertaking to buy this paddy at this price, something they cannot do at the moment, due to the lack of sufficient quantity of paddy of these varieties to meet export orders.

I trust the reader can understand where I am getting at with this argument. The Miller has seen a greater opportunity using the auspices of the Govt. to try an ensure sufficient quantity of product to meet their market. So they can increase the profit they make. I ask him to pass on the commission he makes on this to the farmer by offering the paddy farmer at least Rs50/kg for the paddy of these varieties to ensure sufficient supply. There is NO way farmers will fall for the Govt. ruse in sufficient quantity for export to ensure viability in economies of scale. SAKALA go back to your drawing board please and TRY AGAIN

A Govt. that presents itself as the friend of the farmer has been the one that has ruined farmers forever by their lack of a comprehensive agricultural policy. Due to their expert media effort at fooling the Agricultural community, they have successfully hidden their deception from the public, and I am attempting by using actual real world examples to show that they have no idea of what they are doing. The farmer is being crucified by this government and the farmer seems to be going to his crucifixion like a lamb to slaughter, what a sad sad reality!!!

I am enraged at the comments of the Secretary to the Provincial Agricultural Ministry of the Wyamba Province.

In today’s (April 17^th 2012) Daily News, Mr MABD Bandaranayake, Sec to the Provincial Agriculture Ministry of Wyamba told farmers who were struggling to get a price for their produce, who were contemplating changing to Tobacco cultivation, and I quote, “Farmers will not get the fertilizer subsidy provided to them by the government, if they start tobacco cultivation. Farmers should identify the demand at the market and plan their cultivation"

How out of touch with reality is he? Does he not know that farmers always try to identify demand and plan cultivation of vegetables, and when the product comes to the market they discover that the price they were led to believe they will get in fact has dropped drastically.

The Tobacco Company has a very sophisticated system of outgrowers that the Agricultural Department would do well in emulating. Instead of blaming the farmer, see how his lot can be improved by the examples of success stories in practice. I have pointed this out in my earlier blogs too. They help the farmer all the way from seed to harvest and to top it all they guarantee the price for the quality they expect. It is important to a farmer that his risk factors are minimized.

I am physically unable to be at my fields this season due to my disability. I have rented my land to a farmer. He will plant tobacco as he has calculated that given the circumstances it is the best bet for him. Farmers are NOT irrational people,, they make decisions based on inadequate information, and training, which turn out to be wrong later. This is a perennial problem that has not been solved YET.

Frankly the fertilizer subsidy is a red herring and irrelevant. In fact it is counter productive to farmers as they make incorrect decisions due to this interference in the market dynamics. The Govt. has got all its calculations wrong. The whole Divi Neguma process, is about increasing self reliance, which then reduces demand of the farmers, leading to the farmer to lose money as the govt. HAS NOT found an alternative market for the excess supply, such as overseas.

The Divi Neguma program is going to devastate the farmers, in a way one cannot even imagine. The need of the hour is to immediately find an outlet overseas for the surplus, as a small surplus wipes out the price of produce.

Today, I have organically grown Okra and Pathola, and as I am only a small producer I have no market for it! There is no point in growing this or anything else.

The Rice Farmer – it is not an option anymore!!! if that is all you are

There is no profit in growing paddy on an acreage that is less than 5 acres which comprise, 70% of the paddy land grown today. So REMEMBER the rice we eat is grown by people making a sacrifice!!! For no gain, not even enough to pay for a daily wage of Rs200. So what does the future hold?

I spent the best part of today, going through a file of Newspaper clippings of the farmers’ plight throughout the land this year, on not obtaining a fair price for their produce, with various calculations about the cost of production. It also shows in contrast, the costs rising steeply since 2005, whilst the guaranteed price from the state has not changed in this same period. They are clamoring for the Govt. to raise the minimum price to Rs40. The reality is at that price are we asking the state to suffer a loss on account of the farmer. The market price WILL NOT rise if the Govt. raises its price due to the surplus and due to people prepared to undercut as the state is unable to absorb all the surplus at that price, let alone even at the current price, where the state only purchases less than 10% of the harvest.

It is moot about the guaranteed price as in this season due to the surplus, most farmers had to dispose of their harvest at a lot less than this price. I am a paddy farmer so I know the pros and cons. And I also know that I have bought paddy a few years ago when we had a shortage, at prices at least 50% above the guaranteed price. So then it was viable at that price, and then we treated the guaranteed price as a floor or safety valve, where if the market price is higher, no farmer worth his marbles will sell to the state!!

The reality, in a period of shortage, farmers will not complain about price, in a period of surplus prices are rock bottom. Costs in the meantime continue to escalate. Is it any wonder if they just stop farming? The clamor for the state to pay Rs40 is because the relative cost increase and when compared with other costs, the price of rice is too low. A kg of paddy commands the same price as a bulath vita they say, when in few years ago you could buy 4 bulath vita with it!! In addition if one says the Govt. cannot spend money buying the paddy at higher prices, then the argument is that the Govt. is wasting huge sums on wasted PR exercises such as Dayata Kirula for personal glory of the administration at the expense of the people.

If one takes the example of Japan, the price of rice in Japan is about 5 times the world market price, as the Govt. has made a policy decision to assist the small rice farmer in Japan who farms small plots to stay in business by guaranteeing a price and holding this price at retail level, charging a very high tax on imports. Unlike Japan, where less than 4% are farmers, we in Sri Lanka are an agricultural nation still, and to improve productivity before we save all the marginal farmers from extinction, we have to determine what the policy should be.

Should we encourage larger lost sizes, as it is inevitable, when fewer people go into farming? I believe YES. We must change the land holding laws, and stop distributing land to landless people, except a max of 8 perches for a home. We MUST encourage professional farmers using latest technology to maximize yields. The small uneconomical farmer will disappear and will find alternative employment where they WILL BE better off. Until yields improve we will see this cry for a better price.

Yes it is true that in relative terms the price of rice has fallen substantially, and it should realistically be 50% higher. The Govt. does not intend to pass this on to the consumer as they are acutely aware of the other price increases the consumer has had to bear today, and adding rice to this will further turn them to bread, a lose lose alternative in a period of surplus.

The current argument goes that a family meal with a KG of rice will cost Rs60 and three loaves of bread the substitute will be Rs165, so it is fair to increase this to say Rs80, so both producer and consumer can be in balance!!!

If the price increases to Rs40 for paddy, it must also be remembered that the efficient producers of paddy will increase production. It called profit motive, and so the surplus will grow not fall. The hard decision whether to let the marginal fail is the political hot potato!!!

My contention is that we have skewed data of who this marginal population is. I do not believe anyone can survive on one and a half acres of paddy, let alone bring up a family of 4. So even today those who call for an increase only rely on paddy for less than 30% of income except for a small minority who we should identify and assist by other means.

In either scenario, before any of these are even contemplated, there HAS to be better storage facilities which I do believe the Mill owners will relish as they will obviously believe they will be the biggest beneficiaries of Govt. storage investment. After all it is they who will buy the shipments of paddy from this storage to run their mills with!!! However there has got to be safe storage for the additional paddy both for a reserve buffer stock, and to suck up the excess from the market, preventing a drop in the price of paddy and therefore rice. It is important that all these factors are taken into account for the farmer requests to be practical.

What alternatives are left for a rice farmer?

The Miller’s tale in my previous blog entry illustrated quite clearly, that the Miller cannot be unseated by Government intervention, unless the state wishes to get further into a hole to help the farmer. As it is they are in the Rs50B fertilizer subsidy hole not to help the farmer as I have amply illustrated, but to get the farmer vote. I have also said that even if 20% of one’s income (not even profit) is from farming the person claims they are farmers and in the Census they will be counted as such even though he runs a small kade, where most of his income comes from.

The person or his wife does not want to mention the kade, to the census enumerator because they fear that samurdhi(welfare) benefit will be cut. So the census records a huge error in the number of farmers. The subsidy therefore is the sacred cow, dragging development of the country and of the farmer as well, as he is making incorrect agricultural decisions based on this false price he pays for this input.

In that context when farmers have no control over the price they receive and if market forces offer a price far lower than the cost of production, the state with the limited resources at their disposal cannot further subsidize them by either purchasing their produce or by increasing the unit price offered to them, without affecting other resources they are committed to.

Farmers at the margin will just have to change the crop, leave their land fallow, or rent it to another which may be the most practical, as at least there will be some net income and not an outlay. He will have to sell his services, for wages and the daily wage on labor is now nearly Rs1000 far more than these marginal farmers can expect to earn as their own boss in planting a few acres of paddy.

It is important that this reality is explained and all alternatives they could adopt are also explained. The fact that many farmers have for say 30 years grown the same crop in the same way, expecting the state to bail them out if something goes wrong is not a reason to continue in the same age old tradition. Times have changed, we now have a visible surplus of paddy over our consumption patterns and we must tackle this problem head on making hard choices, rather than delay them by way of subsidy or state purchase.

It is time we drastically improve productivity, by using the large earthmovers to change the fields to those that large 4 wheel tractors can be used and realize the days of the two wheel tractor is over. We do not have labor to operate them let alone change the wheels each morning before putting the machine into the fields.

The Miller’s Tale (maha moal karaya – goviyage apaya neda!)

A fictional story though based on the real world tale of a successful miller.

Once upon a time a man had a vision of making a lot of money, taking advantage of the disunity and lack of vision of the farmers, to buy paddy at rock bottom prices from the farmers and sell rice to the retailers at huge profit margins. In order to do this he realized that he must be able to control the price paid to farmers, and in order to do that he also realized he must be a big player in a rice growing area, and have access to free, that is preferably government stores for storing his paddy, and in order that he has minimal holding costs also relying on the state to purchase paddy and store it until such time he is able to buy it off them for his to use.

When he embarked on this venture, he was fortunate enough to find a friendly bank which also subscribed to this vision and obtained a loan facility to build the best Rice Milling factory in Sri Lanka. Its capacity was in excess of 60,000 tons per annum working round the clock. He also wanted to ensure that he used all the byproducts of the milling process. The chaff from the paddy was determined as the input raw-material to use for either the par boiling in large vats of the paddy or even easier to produce electricity, so that not only could he par boil, electrically but also run the whole factory and then some from the power generated from this chaff. He therefore built a power-station producing electricity and any additional power generated could be passed on to the National Grid, which was offering very high rates. He could therefore save a fortune in the high electricity tariff that was being levied at the time, and which was bound to increase with time.

There was one very important matter that had to be attended to in order that he obtain sufficient paddy to run his factory round the clock all year round. Every working day a minimum of 50 lorry loads of paddy are required to serve the mill, so how was he to obtain so much paddy? He had to do something about the competition. There were about 150 rice millers in Polonnaruwa district who were of comparative size, producing rice and selling them to the retail market. They were mainly Muslim owned and they had a network to market their rice through their intermediaries they had built up relationships with. With so many mills the competition amongst themselves for paddy was also high, which was of benefit to the farmers, as when there were shortages, the millers had to compete on price to get the paddy from the farmers driving the price of paddy up.

The answer was to buy them all up and shut them down!! This eliminates the competition at one stroke, and the farmers with little choice as to whom to sell to.

Hey presto that is what he did, and initially the foolish farmers were highly thrilled, as the Muslim miller was a feared man, who they saw as ready and waiting to buy their at the point of harvesting, as they had borrowed money from him for the cultivation and he waited on them to sell the paddy to him, as part of the bargain sometimes at prices below the market rate. To this day, some foolish politicians still say the Muslim miller who the farmer was indebted to was taken out by this magnanimous big miller who has helped us!

The small mills that are left are those that mill the paddy for home consumption, with none large enough to compete for the purchase of paddy. This is how the dominance of the small mills that provided employment to about 4,000 people in Polonnaruwa ended. Now the massive plant just employs 150 people just to take the paddy from the trucks and put them into the machines, and then take the bagged finished product and load them on to the trucks for delivery round the country to the retailers. Even the driver of the truck must get out of the truck at the gate and employees of the mill take it from there, weigh in and weigh out and give him the cash for the consignment at the agreed rate at the time the truck is returned.

The Mill makes Rs5M a day in profits if it runs at 80% capacity and so due to this incentive of running at capacity to maximize on profits, all efforts are made to ensure that the raw material keeps pouring into the factory day in day out. He can determine the price and there is no competition to purchase the paddy. So today when the state pretends to purchase as Rs28, when its stores are full, he buys at Rs23 and his cost of production of rice leaving the factory is Rs35. The same rice retails at between Rs 60 and Rs65 as the reputation of his brand, as he has the best machinery around for the milling, allows him to charge a premium price also.

His cost is so low unlike other mills because he uses all by-products and generates his own power from one. The rice bran commands premium prices of over Rs30 a kg, which is used for animal feed, the most nutritious part of the paddy milling process. It is a great if you can ensure your factory runs all the time, so the name of the game is to prevent the paddy from going elsewhere which may affect the inputs. There was a time, when check points were in operation, that the paddy could not leave the area, as the security personnel found every reason to not to let a lorry pass, insisting on them emptying the lorry to search behind for contraband.

He now uses wholesalers who do his stocking and transport for him to bring him the paddy, so they do the preparatory work of informing him of the quality, quantity and type so that he can have a smooth input, with the latter earning Rs2kg for that privilege. That is the reality and nothing can change it now.

Do not forget that as other mills are inefficient they cannot compete, so he has no worry about reducing his price, if he reduces his price theoretically other mills will go out of business, but why should he do that when he is making super profits of an oligopolist by just pricing at the market.

In order therefore for the excess paddy in Sri Lanka to be absorbed, the Govt. must purchase and store at least 6 months supply in large silos around the country and also have a plan to build a large mill for export quality rice, that requires special standards of quality control to compete with international standards, which this mill also has. This mill owner makes more money selling to the local market, the export market to him is actually more competitive!

The Chillington Crocodile with over 150 years of faithful service in Sri Lanka

Over the years, seven and a half, to be exact I must have bought at least 100 ‘Kimbula udalu thalayas’ for my agricultural needs. If one goes into the web site of Chillington, which is manufactured in the West Midlands in the UK, there is a size and shape of Mammoty just for the Sri Lankan market. I think we must be suckers for inefficient agriculture as we keep insisting on using mammotys and the 9”X9” is the best selling model.

So it was purely coincidental that on Sunday I was in a small village of Udupila in the Mahara electorate to distribute 24 of these to the local people who had been previously informed that they would be receiving one from us. Actually over 100 had requested them, but only 24 could be purchased with the available allocated funds this year with the rest promised next year. This was notably the first time the Kimbula was distributed, as previously the locally produced Lanlo was, and I had no faith in its longevity.

I have mentioned this before, but we can only request the make and size and hope that is what is given. A further problem is that we have no control over the price that is paid for it. These were given at Rs1200 to our budget, when I can buy them at a place I have always bought in Dambulla at Rs850 so one can imagine there is some hanky panky at the Divisional Secretariat in this purchase at the expense of the people of the country. If only they worked for the people’s interest and not their own.

I still question the ethics of handing out these to people who use it for home gardens and around the house tasks, and not for farming proper. It is given because they have requested them from a hobson’s choice of a limited amount of items. Secondly those who received the Mammoty are not necessarily the most deserving cases. Their main claim to fame is that they have been somehow treated unfairly by the state as they are known to be party people, and therefore penalized for a transgression or two whilst those of the govt. who do the same are not even prosecuted. They therefore feel it is their right to receive something when some item such as this is distributed to people in that particular area by one of their MPs.

Further the “Udalu Mita” or the wooden pole to which this is attached must be added before it can be safely used. It is not easy to do this, as I know from experience and it can only be done properly by someone well experienced in it and it is unlikely that the majority of the recipients will be able to do the needful for at least another 6months before they are usable.

Is the State not going to buy the Paddy from Farmers this year? Ampara District a case in point!!

Judging from the first to harvest paddy this season, namely the Ampara District and to some extent the Kurunegala District farmers, the former do it on a large scale and therefore have to dispose of their harvest as soon as it is dried and packed. The Kurunegala farmers on the other hand are usually those with smaller plots, and are able to store their paddy and use a substantial amount for personal consumption.

No allocations have been made for the Paddy Marketing Board to purchase the paddy from Ampara. The big mill owners, including the Govt. stooges, Dudley Sirisena of Araliya Mills and Siripala Gamlath of Nipuna fame do not appear to have sent their lorries to purchase. The price of paddy has fallen to Rs16 per kg. In the days ahead we will see agitation, even riots and self immolation, as the farmers are in a real bind. I have hardly seen this in the press yet as it is too far away for the reporters to get a scoop but it is a matter of time. I understand that the big boys have let the price slide so they can QUIETLY scoop it up at that price.

This is a case of highway robbery. I as a paddy farmer know that at Rs16kg, I can mill paddy and sell rice before transport costs at Rs25kg. If one adds Rs5 for transport and retail, then it can be sold at a profit to the wholesaler at Rs30. This same rice is today Rs45. Can you imagine the profit margin of the Big millers in this game? Nipuna has his own electricity generation, and is able to sell byproducts of Rice bran for animal and human food, giving him an added profit advantage. Who is the loser and winner at this price? I am sure my reader can ascertain that!!!!

I am therefore contending that it is another calculated game played by the Govt. not to allocate funds for the purchase until most of the Ampara paddy is sold at cheap prices to millers, who can then stock and sell it whenever they wish at the prevailing retail prices which I guarantee will NOT fall to Rs30 for Sudu Kekulu or Rs33 for Nadu, both of which is the price it can be sold at if the paddy is Rs16.

It is always the miller/ wholesaler who has the money and the transport and storage arranged, who benefits from this pricing. It is important if there is a state purchasing mechanism, that unlimited funds are given for the guaranteed minimum price of Rs28kg for Kekulu and Rs30kg for Samba at all times, and not at small windows of time which is open to corruption, mismanagement and highway robbery. What actually happens even in this latter scenario is that the Millers further use the state as their bank to buy and store it for them, and they buy it later at a lower price when the state has nowhere to store, or the paddy begins to spoil due to the poor storage practices of the state warehouses. THE SYSTEM SUCKS