Abstract:
Rice, wheat and sugar are important sources of food energy in Sri Lankan diet. Rice is a
preferred staple food and dominant source of energy. Sri Lanka is producing enough rice
to meet the domestic consumption requirements. Import of rice serves as a buffer stock
against poor harvests due to the unfavorable climatic conditions. Domestic consumption
requirement of wheat and sugar mainly depends on imports. The high price fluctuations
of these commodities adversely affect consumer welfare. Impact of price fluctuation on
consumer welfare depends on the price flexibility and scale flexibility of these
commodities. Therefore, government involvement will be needed to reduce the price
fluctuations of these food commodities. This study examines the price flexibility and
scale flexibility of these commodities. The variables used in this study were quantity of
rice, wheat and sugar and retail price of rice, wheat and sugar. For this study, secondary
time series data for the variables mentioned above were collected for the period of
1996 to 2015 from annual report of Central Bank of Sri Lanka. Average milling
percentage and import and export quantity of wheat and paddy were also used to get
the approximate availability of wheat flour and rice for the consumption. Retail price of
white rice was used as a proxy for the retail price of aggregates of all rice varieties. A
Generalized Inverse Demand System model for these commodities was estimated using
seemingly unrelated regression method. The results of this study indicated that own
compensated and uncompensated price flexibilities are negative. Positive sign of cross
compensated and uncompensated price flexibilities indicates that these commodities
are substitutes each other. Price flexibility and scale flexibility is higher for wheat than
rice and sugar. This shows that wheat is more sensitive to the change in price and
income than rice and sugar. This study would be useful for policy makers to formulate
import policy for these food commodities.
