Structure conduct and performance of the rice milling industry of Sri Lanka: evidence from selected cases
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Date
2017-06
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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.
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Keywords
Structure, Conduct, Performance, Rice milling, Sri Lanka