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UNCLAS SECTION 01 OF 02 COLOMBO 000370 
 
SIPDIS 
 
SENSITIVE 
 
SIPDIS 
 
STATE FOR SCA/INS, SCA/RA, and EEB/TPP/MTA 
DELHI PLEASE PASS TO FAS 
 
E.O. 12958: N/A 
TAGS: ECON EINV KCOR KMCA PGOV CE
SUBJECT: SRI LANKA: RAIN HURTS RICE CROP; PRICES RISE 
 
 
¶1.  (SBU) SUMMARY:  Torrential rains are damaging paddy yields in 
the main rice growing areas of Sri Lanka, with as many as 15,000 
hectares lost.  Domestic prices are up in wholesale markets and 
sharp increases in retail prices have started and will continue 
unless international supplies can be assured.  The government has 
temporarily lifted import tariffs for rice in response to the 
shortage of domestic supply and is working to secure international 
commitments for rice imports.  Although farmers are expected to 
benefit by high rice prices, the continued increase in cost for this 
staple food product is negatively affecting the poor.  End summary. 
 
------------------------------------------ 
A Weaker Harvest, in Quantity and Quality 
------------------------------------------ 
 
¶2.  (SBU) Sri Lanka's rice production is suffering from too much 
rain.  Locally, rice is traditionally reaped twice a year.  The 
major ("maha") harvest season runs from February through April, with 
a smaller crop brought in between October and December.  The North 
Central and Eastern regions fill the country's rice basket, with 
Ampara in the east the highest rice producing district.  (Note: 
Northern and Eastern paddy crops have long been negatively affected 
by the conflict.)  Initial estimates by the GSL's Department of 
Census and Statistics placed 2008 rice production at 2.1 million 
tons.  However the recent inclement weather will make this figure 
unattainable.  Sri Lanka consumes approximately 2.3 million tons of 
rice per year. 
 
¶3.  (SBU) The Director General of Agriculture, Dr. C. Kudagamage, 
told Econ FSN he estimates approximately 15 percent of this year's 
"maha" crop will be lost. He acknowledges prices are rising due to 
local shortages, and are expected to continue to rise as supply is 
further curtailed. 
 
¶4.  (U) A drop in quality is also likely as farmers are unable to 
thresh the paddy during significant rain.  As a result the rice 
remains in the paddy longer than is ideal, and quality suffers. 
Officials of the Department of Agriculture's Office of Extension 
Services estimate around 50,000 tons of harvested rice will be of 
inferior quality. 
 
---------------------------------- 
How Bad Is the Shortfall? 
---------------------------------- 
 
¶5.  (SBU) The extent of the rice shortfall is a common topic of 
discussion as prices rice and families are forced to make hard 
choices about how to spend their rupees.  Theories concerning the 
both the extent and reasons behind of the local shortage of rice 
abound: 
 
-- Dr. R. Ratnayake, the Secretary of the Ministry of Commerce, 
believes the current shortage is primarily due to an inability to 
mill harvested paddy as it cannot dry properly, and because a large 
number of small millers are holding stock in anticipation of further 
prices increases.  He also notes that the drop in wheat flour 
consumption over the past year -- as a result of high prices -- has 
created additional demand for rice.  He estimates that Sri Lanka 
will require an additional 200,000 tons of rice (2.4 million tons 
total) above last year's level to meet demand in 2008. 
 
-- T. Pallianandy, the president of a commodity wholesale 
association in Colombo, feels the situation is worse and asserts 
that only 15 percent of the "maha" harvest has been collected to 
date.  To illustrate, he notes that in a normal "maha" season, 25-30 
truckloads of rice are delivered to the wholesale market daily. 
Currently, he says, only 3-4 trucks arrive each day.  He adds that 
the heavy rains have also flooded many small stores, causing a loss 
of previously harvested rice.  He also believes many millers and 
traders are holding on to rice stocks, hoping for further price 
hikes. 
 
-- Managing Director of Cargills Ceylon Ltd Ranjith Page, whose 
company operates more than 100 retail food outlets and accounts for 
4 percent of total rice traded domestically, claims that 30 percent 
of the rice crop has been destroyed.  In addition, he says 20 
percent of the harvest is afflicted by poor quality. 
 
------------------- 
 
COLOMBO 00000370  002 OF 002 
 
 
Government Action 
------------------- 
 
¶6.  (U) Expecting that prices will rise sharply in the next few 
months, the government is taking action now to ensure a steady flow 
of imported rice to ease local shortages and price escalations. 
However, with global production scarcity and countries such a 
Vietnam, Thailand, and India prohibiting rice exports in an effort 
to cope with their own domestic needs, cheap imports are unlikely to 
be widely available. 
 
¶7.  (U) The government has found at least one willing partner. 
Following a plea from President Rajapaska, India agreed -- despite 
its ban -- to export 100,000 tons of rice to Sri Lanka.  (Note:  In 
2007, Sri Lanka imported just over 70,000 tons from India.) 
However, concerns about the price at which it will be exported 
remain, and it will not be enough to meet Sri Lanka's needs.  As a 
result, the GSL is also making appeals to Pakistan and Burma for 
rice supplies.  Trade Minister Bandula Gunewardene recently traveled 
to Burma to plead for 100,000 tons of rice exports in 2008, and 
discussions with Pakistan could add another 50,000 tons to Sri 
Lanka's supply if successful.  However, according to Pallianandy, 
Pakistani rice varieties are not suitable for local consumption, and 
its wholesale prices are too high. 
 
------------------------------- 
Prices and Impact on Farmers 
------------------------------- 
 
¶8.  (SBU) Without assurances for international rice availability and 
lacking a full picture of the extent of local damage, it is 
difficult to predict how high rice prices could go.  In December 
2007, one kilo of rice sold for approximately 55 rupees ($0.53).  At 
present, the same kilo goes for 80 rupees ($0.77).  Cargills MD Page 
believes that prices could rise to as much as SR 140 ($1.30) in the 
next few months.  The burden on low income families will be 
significant. 
 
¶9.  (U) Farmers are faring well, with many benefiting due to the 
shortage.  Those who held off on selling their harvest from late 
2007, and/or those minimally affected by the rains are now fetching 
high prices for their crop.  Many also continue to hold on to stocks 
in the hope that prices will rise even further.  In some cases, 
these high prices may more than make up for their "maha" loses. 
 
------------------------------------------- 
Comment: Weather is the Proximal Cause, but 
Government Policies Exacerbate Problems 
------------------------------------------- 
 
¶10.  (SBU) The current shortage is not yet a crisis, but it could 
easily reach that level if the government is unsuccessful at 
securing additional supplies.  However, the government has itself 
partly to blame for the current situation.  Agriculture contributes 
approximately 16% to Sri Lanka's GDP, and provides employment for 
around 30% of the population.  Unless the government and private 
sector focus on better technologies to enhance production, Sri 
Lanka's domestic production will continue to lag, with or without 
additional inclement weather concerns.  The government currently 
spends millions of dollars annually on fertilizer subsidies with 
negligible results.  These funds could be better utilized to 
transfer proper agricultural practices to farmers and to build 
infrastructure and market linkages.  Mismanagement and corruption 
among government agencies also exacerbate problems.  Recently, rice 
imported to be distributed through the government's cooperative 
system was discovered to be sold through private traders. 
Unfortunately, despite these concerns, the government appears too 
preoccupied with the conflict to address these issues.  The high 
rice prices will add to Sri Lanka's already high inflation, 
resulting in continued difficult times for Sri Lanka's poor. 
 
BLAKE