RICE: Economic boom or bust? - Part X

Bojoon.com and CIC has teamed up to review one of the most controversial debates of Sri Lanka - is rice as an industry worth the effort.

The discussion so far...

Rice as an industry comes under heavy fire as unprofitable notes Senior Consultant Researcher of CIC Agri Businesses Dr. Sumith Abeysiriwardena. Yet, instead of being abandoned as such, rice production over the last 6 decades has increased by 12 times! He points out the tremendous demand for rice; ease of handling the grain and the only crop that can be grown in marshy lands.

With our technology and unique hydraulic systems our productivity is high and points that history has proven that rice is both our staple and our stronghold against our many enemies.

He describes while other countries has made a viable export and domestic industry, we have decreased our rice consumption for wheat, making us economically vulnerable. He feels that buffer stock provides a good solution to stabilise our staple, especially with unpredictability unique to agriculture.

Our neighbours certainly seem to be reciprocating his very thoughts. MD/CEO of Agri Businesses Keerthi Kotagama, calculates that even with the best estimates, rice shortage is imminent at least at the tail end of year 2008, and a buffer stock is the only solution to address this immediate problem. Kotagama continues that with increased production of ethanol due to increasing fuel prices and globalisation, the world is about to face a severe rice shortage. The intervention programmes of our immediate neighbours, though taken with the country's interests at heart, are causing unintended and long-term repercussions threatening to create a hungrier world. Conversely, this has provided Sri Lanka a strategic moment that if used right would propel its rice industry to new levels. The discussion continues:

Sri Lanka, continues Kotagama, can increase its rice yields either by increasing the land of cultivation or fully maximising the potential of paddy. With the technology prevailing in Sri Lanka, it is easily possible to achieve 100 bushels per acre. CIC is already achieving 130 bushels per acre, but other countries in the Far East like Indonesia, China, Vietnam, Philippines are taking a much far better yield with their hybrid varieties.

Even with this evidence, Sri Lanka has yet to fully exploit hybrid varieties. Currently, only the CIC farms at Girandurukotte cultivate hybrid varieties, notes Kotagama.

However, even without high yielding hybrid varieties rice yields in Sri Lanka can significantly increase especially with lands in the Eastern Province now clearing up and becoming available for cultivation.

Kotagama calculates that if Sri Lanka develops its rice industry to export levels, the farmer will finally earn a return worth his full investment.

Currently, the world market prices are around US$ 950.00 / metric tonne, which roughly translate to about Rs. 100 / kg.

In extreme conditions like CIC where everything needs to be hired, the cost of production is around Rs. 50,000 / acre. Thus, in the worst case scenario, where fertiliser is Rs. 1,00,000 / tonne the cost of production is about Rs. 25.00 / kg.

However, the farmer gets his fertiliser at the subsidised rate of Rs. 7,000 / tonne. Thus, his cost of production per acre is Rs. 30,000.00 / acre. Out of this, roughly Rs. 17,000 needs to be deducted for the labour component as well as for machinery. This leaves the farmer around Rs. 13,000 / acre.

Since one bushel is considered as 2,000 kg / acre, if the farmer gets 100 bushels / acre and if he hires his labour, then his costs would be: 30,000 / 2,000 = Rs. 15 / kg. If he sells this at Rs. 30.00 / kg, keeping a 100 per cent margin, he earns a profit of Rs. 30,000 / acre (Rs. 15 / kg * 2,000 kg / acre).

In the domestic market, with the government guaranteeing a price of Rs. 22.50 / kg, the farmer earns Rs. 7.50 / kg (Rs. 22.50 - Rs. 15).

However, if he exports his rice, his gain with the world market prices currently being around Rs. 100 / kg would be about Rs. 40 / kg (during the milling process only about 60 per cent of the paddy is processed into rice). The farmer's prices, says Kotagama, are however actually much higher for he instead of hiring helping hands involves his own family as labour, which saves him the labour component of Rs. 17,000.

The consumer also gets his rice at a decent price. After adding the costs of milling, rice production, transport, distributor margins etcetera, the consumer would pay around Rs. 70 / kg for his rice, which Kotagama concludes is a fair price.

Join Daily News next Friday as bojoon.com unravels with CIC many mysteries and misinterpretations surrounding rice cultivation in Sri Lanka. Share your own opinion by simply dropping an email to [email protected]. For more information of who we are, do visit www.bojoon.com.