Structure, conduct and performance of the rice milling industry of Sri Lanka: evidence from selected cases

Abstract

The rice milling industry in Sri Lanka is alleged to be characterised by imperfect competition and excessive profits. The purpose of this study was to examine the structure, conduct and performance of the rice milling industry of Sri Lanka. The structure of the industry was examined using concentration ratio and Hirschman- Herfindahl Index (H index). The conduct of the industry was examined using a Hedonic price analysis. In order to evaluate the performance of the industry, the technical efficiency of the rice millers was estimated. Marketing margins over time and across different groups of millers were also examined to test whether there was an increase in the margins between retail prices of rice and farm-gate prices of paddy as an alternative indicator to ascertain industry performance. The results of the analysis indicated that the top four firms in the sample occupied 6.30% of the market share, implying that the rice milling industry of Sri Lanka was atomistically competitive. The calculated H index of 30 also suggests that the market was competitive. Contrary to popular belief, the results of the Hedonic price analysis indicated that consumers were indifferent among brands and that none of the established brands had a significant effect on rice prices. The results of the input orientated Data Envelope Approach indicated that the mean technical efficiency of the millers in the sample was over 90% and there is no statistically significant difference in the technical efficiencies of large scale millers who possess modern machineries and that of the rest. Furthermore, there is no evidence to conclude that millers with superior milling equipment have excessive margins.