An Economic Analysis of Consumer Demand for Rice in Sri Lanka

The objective of this study is to investigate the consumer behavior of demand for rice in Sri Lanka. To achieve this objective a demand model for the rice sector is developed. The model consists of an open market consumption equation, an open market price equation, an import equation, a domestic supply equation and an identity for government stock. The Two Stage Least Squares technique is used to estimate the model using time series data from 1955 to 1985. All estimated parameters in the model are consistent with postulated behavior and theoretical expectations. that The estimated parameters of the econometric model suggest real income and government intervention in rice distribution are major determinants of rice consumption in the open market. The elasticity of demand for the open market rice with respect to quantity of rice distributed by/the government is -0. 77, indicating that one percent decrease in the quantity of rice consumed under government rice distribution programme results in 0.77 percent increase of rice consumption in the open market. Similarly, an increase of one percent income will increase consumption of rice in the open market by 0.63 percent. However, the price of rice does not play an important role in determining its quantity consumed; one percent rise in price is likely to result only in 0.33 percent decline in rice consumption in the market. Also, increase in price of wheat flour does not have considerable impact on increase in rice consumption because they are not close substitutes. In conclusion, the increase in income of the rice consumers especially low-income people appears to be the most appropriate policy instrument to increase the domestic rice consumption