Issues and challenges faced by small and medium scale (SMS) millers: Examine the applicability of the theory of transaction cost economics (TCE).

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.