Dear Editor,
The stranglehold rice millers have over paddy farmers is a perpetual problem that has been around for decades. Paddy farmers deliver their paddy to millers with the expectation of being paid in full within the shortest possible time, but this outcome may never materialize. The reason being that paddy farmers do not have an enforceable contract with millers that specifies spot-payment terms for paddy delivered to the mill. Without such a contract in this unbalanced relationship, millers will continue to have a significant advantage over paddy farmers, where it is likely that lower than expected grades are given for paddy sold, resulting in relatively low paddy prices and less than expected income for paddy farmers.
The miller’s advantage is based on the notion that there are many small paddy farmers who have no alternative but to indirectly compete with each other in order to sell their paddy to a few millers. Simultaneously, the few millers in any location can in turn pick and choose which farmers they will accommodate in the milling season, given that millers would prefer to pay farmers from the money they receive from rice sales, instead of paying paddy farmers from their own capital which has an opportunity cost, or from interest bearing loans sourced from the banking system.
Consequently, the manifestation of the rice millers’ power is observed in delayed payments and perhaps in concerns raised about grading that can run counter to paddy farmers’ expectations. In a competitive environment, where millers would have had to compete with each other to procure paddy for their mills, the power play by millers would have been reduced. Specifically, millers in this environment would of necessity have to pay paddy farmers on the spot, using their own working capital or loan financing obtained from banking institutions. Regrettably, this is not the norm observed in the industry and paddy farmers are burdened with the interest cost from the time they deliver their paddy to the miller to the time when the miller in turn takes many weeks or months to complete the full payment for the paddy.
During this interregnum, paddy farmers suffer a cash flow squeeze that curtails replanting; it reduces paddy profitability; and it increases loan default through the power play by rice millers at the expense of the paddy farmer. Furthermore, as noted by many others, including the CEO of the Guyana Bank for Trade and Industry, Mr John Tracy (SN, July 27), the Rice Factory Act is useless in such an environment, even as commercial banks avoid the task of taking on the risk associated with agriculture for a number of reasons. In previous letters I covered this topic on the absence of commercial banks in high risk agriculture, and I need not present those arguments again; but changing the dynamics between paddy farmers and millers is a topic that requires a brief presentation. This can be explored through small farmers pooling their resources to acquire their own rice mill; and in turn managing the rice milling and marketing operations in a transparent, efficient and profitable manner. This is the way forward for paddy producers, for only competition with private millers will improve the environment. Policy-makers and paddy farmers need to seriously examine this approach aimed at rebalancing the market for buying paddy.
Yours faithfully,
C Kenrick Hunte
