The price for rice on the world market has dropped considerably

Dear Editor,
When people with no knowledge of international trade make public pronouncements on matters about which they have absolutely no idea it can be a very dangerous thing.

When a handful of small rice farmers decided to go public with a call for rice millers to pay hefty increases for paddy to be harvested in the coming crop they were doing so without linking that call to the realities of what is happening in the international trade in rice.  It is glaring for all the world to see that these farmers who appeared on a local television newscast last Tuesday evening know nothing about present global rice trade developments. To say that the prices for rice on the world market have not dropped is ludicrous.

How can the West Demerara small rice farmer and his little group explain Asian rice prices, down from an all-time high of US$1,050 per tonne in mid 2008 to US$500 per tonne at present, a -52% change, and still claim that prices have not been reduced?  Surely, these chaps cannot be serious! Asian rice prices set the tone and pace for the world’s rice prices. 

Amidst this group’s calls for millers to pay unrealistically high prices for paddy for the next crop, I am compelled to write and seek to provide the group and others with some information which will serve to better educate them on the international trade in rice.

Ironically, in the farmer’s group, I detected the presence of an active participant who is the co-owner of a very small rice mill on the West Demerara. Why is this miller dependent on other millers to purchase his paddy?

Guyana’s production and export is infinitesimal and can probably be compared to the partial production from one rice village in Thailand or India or Vietnam or China! Though we produce a long grain rice, world rice prices are set basically by short and medium grains. Can we compare our annual production of around 300,000 tonnes of long grain to the millions of tonnes of short grain produced by any one of the countries mentioned herein? Surely, we can’t! We have to continue to rely on the dictates of the large producers and exporters and try as best we can to efficiently manage our farms so that we can increase our output.

When the farmer in question and his group make derogatory remarks about the rice institutions on which they depend and which institutions have been helping them, then they are most ungrateful.

I feel compelled to write in support of the Guyana Rice Development Board (GRDB) and the Guyana Rice Produc-ers’ Association (GRPA), the two institutions targeted by the group.

Both institutions have been providing an acceptable level of service to the rice industry despite various constraints. The farmer and his group may have failed to remember that the role of the GRDB changed when the industry was decontrolled and the private sector was given the mantle to take charge of the industry. The GRDB’s role has changed to that of a service and regulatory body.

Is the group now seeking to have the state retake the industry and control the processing and export of rice and possibly the production of paddy? It’s just not possible any longer. I wish to remind these farmers that it was not too long ago when the industry was totally controlled by the then government and a special permit, issued by the government, was needed for you to purchase a bag of rice to feed your family. I have no doubt that the group, barring a conveniently short memory, can recall where a rice miller’s son was shot in the leg for not opening their mill fast enough for the government officials to take their rice away.

Let it be known that when the paddy prices were high during the last two crops and consumers were asked to pay correspondingly higher prices for rice, neither the Government nor its agencies intervened. Do we want a market economy or do we need a controlled economy?

Regarding the GRPA which may have understandably lost the focus and the militancy it had under the inspiring leadership of the late Fazal Ally, nevertheless in the present scheme of things can do little apart from agitating for the timely payments by millers to farmers.

However, many rice farmers have themselves to blame for their present predicament. When they received high prices for their paddy during 2008, many of them overcapitalized on farm machinery. Some who were never in rice farming, did not own lands and had no experience in rice farming, rented lands from others at extremely high prices. Many with five-acre and ten-acre holdings bought tractors and implements and, in some instances, combine harvesters. The GRPA and the GRDB can best confirm the number of tractors, combine harvesters and implements which were purchased by rice farmers during the past year alone. Despite the warnings that prices would definitely fall, farmers carelessly and recklessly invested in the industry using their personal finances and that of banks.

Today, the chickens have come home to roost, and many have found themselves in a serious predicament and want the state to intervene.

We are living in serious and difficult economic times and rice farmers must be able to adjust and fall in line. There is only so much that the government can do. If millers are pushed to pay farmers higher prices for paddy, they also can go under, as happened in the past. Rice farmers must realize that without the millers, they have no business and vice versa. Reasonableness must prevail for the collective good of the industry.

The farmers’ group on the newscast is proposing millers pay between $5,000-$6,000 per bag of paddy in the coming crop. On the assumption of an average price of  $5,500 per bag, the following two scenarios are presented:

Paddy costs (alone) for the production of one tonne cargo (unpolished) rice:
21 bags x $5,500 = $115,500/US$577.50
Paddy costs (alone) for production of one tonne white (polished) rice:
24 bags x $5,500 = $132,000/US$660.00.

The above two simple calculations do not include all the other expenses associated with the drying and processing of the paddy at the mill and the transportation, port charges, GRDB commissions, among other expenses, related to the export of the rice.

It means when the expenses are added to the cargo rice, the Free-On-Board (FOB) Guyana price, excluding profits to the millers, will be in the vicinity of US$700 per tonne at a time when the industry is looking at a high of US$400 per tonne for the coming crop. On the other hand, when the other costs are added to the white rice, the FOB price, exclusive of the profits to the millers, will be in the region of US$800 per tonne when in fact the price for this product will be well below US$500 per tonne the next crop.  The preference now is for cheaper rice and the Asians can fill the pot.

The world’s economy is in turmoil and fewer overseas buyers will appear on the horizon when the crop is harvested. Selling Guyana’s rice will be a hard task since international banks that usually fund the purchase of such exports are themselves trying to stay afloat.

As an operative in the sector for several years, I am convinced that our industry will be able to weather the stormy economic seas, but farmers, millers and exporters must operate with collective reasonableness and amicability. Not to do this could mean the end to an industry which has been the mainstay of many generations of Guyanese. 
So, can the farmer and his group justify their call for increases in paddy prices at this time?
Yours faithfully,
Mahadeo Panchu

Around the Web

Comments