An Option for Paddy Storage
Posted on January 13th, 2025

Sugath Kulatunga

Prior to 1977 the country had an Island wide system of paddy stores for the storage of paddy purchased by the Paddy Marketing Board under the Guaranteed Price Scheme (GPS). This well run complex was disused by the UNP government in their frenzy for privatization. The stores network was given away to loyalists for other purposes or simply abandoned. The GPS too did not function allowing the private sector to dominate the purchase and milling of paddy leading to the development of an oligopoly (mafia) of paddy and rice marketing. The present government is resolved to operate the GPS effectively. For this the government has decided to restore the Paddy Stores network.

A valid criticism of the operation of the former Paddy Stores was that the store keepers managing the sores were corrupt.They had the discretion to manipulate the system to their benefit. They could delay the purchase and payments. In the determination of the moisture content they colluded with the farmers to buy low quality paddy. Another criticism was that the GPS and sale to the government stores did not give the farmer the best price. In most situations the best price is obtained by holding on to the paddy for some time. But the problem is that the farmers do not have the storage capacity to hold the produce until prices improve. Especially at the time of harvest, the prices are pushed down by buyers. The GPS and the government Paddy Stores can cater to only a limited percentage of the market and operates mainly as a check price mechanism.

In Africa, this problem has been addressed with a system that may be adapted by Sri Lanka. For example, in Kenya the system is established under the Warehouse Receipt System Act, 2019. The primary objective of the WRS Act is to promote the development of a county network of privately or publicly managed warehouses that have the capacity to issue warehouse receipts. http://kenyalaw.org:8181/exist/rest//db/kenyalex/Kenya/Legislation/English/Acts%20and%20Regulations/W/Warehouse%20Receipt%20System%20Act%20-%20No.%208%20of%202019/docs/WarehouseReceiptSystemAct8of2019.pdf

Under the WRS, warehouse receipts are issued by warehouse operators as evidence that specified commodities of stated quantity and quality have been deposited at particular locations by named depositors. The depositors are entitled to sell the produce at any time of their choice. The warehouse operator holds the stored commodity by way of safe custody. The receipts may be transferable, allowing transfer to a new holder, a lender (where the stored commodity is pledged as security for a loan) or a trade counterparty which entitles the holder to take delivery of the commodity upon presentation of the WR at the warehouse. The depositor may be a producer, farmers group, trader, exporter, processor, or any individual or corporate entity. WRS system operates in many other countries in East and Sub-Saharan Africa.

In Sri Lanka it may be possible to lease out the abandoned paddy stores to the private sector or cooperatives to operate a WRS scheme. The private sector may also be encouraged and given incentives to open more WRS stores.

It will also be useful to look at the Zimbabwe Act on the subject. It can be downloaded from https://faolex.fao.org/docs/pdf/zim200501.pdf\

The African WRS system serves to provide for the establishment and registration of warehouses associated with the issuing of warehouse receipts and the licensing of warehouse persons; to provide for the storage of agricultural commodities in registered warehouses; to provide for the setting up of a system of inspection, grading and weighing of such agricultural commodities; to provide for a negotiable warehouse collateral receipt system.

Sugath Kulatunga

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