Abstract:
Millers play a critical role both upstream as well as downstream of the paddy/ rice value chain.
The performance of SMS millers is critical, as their market contribution is 57 percent. Investment
for a mill is highly specific and most SMS millers face numerous issues related to opportunism,
bounded rationality, and uncertainty, which are the main concepts of TCE. Therefore, a
questionnaire survey was conducted with 25 commercially operating SMS millers, randomly
selected from the Ampara district, to examine the applicability of TCE in identifying their issues
and challenges. Ampara District was selected as it is the second-largest surplus-producing
district. The collected data were analysed using Microsoft Excel and the study found that the
majority (52 %) of the SMS millers in Ampara incurred higher transaction costs while purchasing
paddy either through collectors or stock-holding millers. Further, it revealed the market share of
SMS millers in Ampara during the off-season became half in comparison to the peak of the season.
The reasons might be opportunism, bounded rationality, and uncertainty issues in the industry in
addition to the technological and financial limitations. Therefore, the study proposes the
government to purchase a significant quantity of paddy during harvest to minimize the impact of
market surplus on prices and release those stocks during the off-season to enable SMS millers to
enhance their market supply and minimize business uncertainty through a continuous process
throughout the year. Therefore, the government should have a mechanism to strengthen SMS
millers towards a higher degree of vertical integration as adopted by large-scale millers. This
study provides new insights for key players to address the issues/challenges in Ampara and is
recommended to continue study in other districts as well to come up with fruitful policies. This
study proves that the theory of TCE is applicable to secure the producers and consumers in the
paddy/rice industry while improving the performance of SMS millers through encouraging
vertical integration, facilitation of funding, and technical assistance, which has not yet been
studied.
