Is the Guyana Rice Development Board turning a corner?

Rice and Sugar

Quite recently, Guyanese have been led to expect much from the rice industry.  Production has increased, exports have increased and even the number of destinations for Guyana’s rice has increased.   Revenues from this industry have also increased substantially that it now threatens to surpass sugar as the major agricultural product of Guyana.  With the exception of 2008, income from sugar cane production always exceeded that from rice.  Rice manufacturing also played second fiddle to sugar manufacturing.  Now that has been reversed.  While income from crop production lags behind that of sugar, income from rice growing has surpassed sugar and earns double that of the sweet tasting product.  With this type of performance by the industry, it is reasonable to inquire of the performance of one of the main economic agents responsible for the rice industry.  The entity is the Guyana Rice Development Board (GRDB).

Monopoly

The GRDB is a public corporation with broad powers to manage the rice industry.  In addition to developing the rice industry and promoting the expansion of export trade in rice, the Board is responsible for the research activities of the industry, setting standards for the products of the industry and assisting with marketing and research.  The Board has been around in its present incarnation since 1994 and by 2010 had evolved into one of the most the dominant and pervasive entities of the rice industry in Guyana with its monopoly powers.  Except for 2005, the GRDB has been turning in a profit every year since 2004.  Since the performance of GRDB is closely tied to the performance level of the rice industry, its performance in 2010 reflects the reportedly good performance of the rice industry in that year.  The revenues of the GRDB exceeded G$500 million and net profits topped G$125 million last year.

Improvement

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The revenues of the GRDB come from many sources, including commission on sales, licensing fees and other general services.  By far the most important source of revenue is commission from the sale of rice, primarily exports.  In a given year, income from commission can range from about 63 percent to over 80 percent.  Last year, commissions accounted for 76 percent of the revenue earned by the entity.   Comparatively, this level of income was 36 percent higher than in 2009 and, in absolute terms, stands out as the best that the organization has done so far.  Even though expenses were up also, the GRDB showed a tremendous improvement in financial performance with net profits reaching as high as G$125 million.  As a result, it was able to keep 22 percent of the income that it earned for itself.  This profit margin is the highest since 2004 which it surpassed by 14 percentage points.  The impression Guyanese would get from this picture is that the growth in revenue vis-à-vis the change in expenses might reflect an improvement in the operations of the GRDB itself.
Direction

One year’s performance is insufficient to reach a definitive conclusion about the direction of the organization, especially since the profit margin — currently at 22 percent — looks like an outlier compared to the previous years.  During the period 2006-2009, the profit margin of GRDB averaged six percent.  In the prior year of 2005, the entity ended up in the red.  Consequently, the jump to a 22 percent profit margin in 2010 would attract anyone’s attention.  A major help is the higher income obtained from the export of rice.  Export quantities to its two major markets increased by significant amounts in at least three of the reporting quarters of 2010.

Exports to the European Union which accounted for 50 percent of the exports of the industry increased significantly in the first three quarters of 2010.  Exports increased almost 100 percent in the first quarter, by 38 percent in the second quarter and by 24 percent in the third quarter vis-à-vis the corresponding period for the previous year. A similar positive effect was observed in its other major export market, CARICOM, which saw increases of 33 and 18 percent in the first two quarters of 2010.  An additional boost in revenues came from the sale of rice to non-traditional markets.  Export quantities to the non-traditional markets increase by 11 percent in the second quarter and jumped by 112 percent in the third quarter of last year when measured against the relevant outcomes of 2009.

Undermining the Narrative

But there are two caveats about the GRDB that undermines the narrative of its performance.  One, the annual report of the GRDB does not provide information about the assets used by the organization to achieve its results.  Consequently, it is really difficult to determine how good it performs.  Even though the GRDB is not a private company, it would really be important to Guyanese to know if the higher income of 2010 reflected a better or more efficient use of its resources.  No one has a clear idea as to how much this organization is investing every year to generate the income that it does.  Knowing this information would be particularly useful considering that about one-third of the resources of the GRDB might not be directly related to rice production.

The second thing that undermines the good story about the performance of the GRDB is the sizable growth in the subvention under the Agricultural Support Services Project. It is not clear from its report whether or not the role in the ASSP is a permanent or periodic one.  Receipts for ASSP started in 2006 and represented less than two percent of the revenues of the Board at that time.  Without any explanation, the amount of money received through the ASSP has skyrocketed sixteen fold and accounted for eight percent of the revenue of the GRDB in 2010. In other words, without the sizable subvention from the administration that amounts to a subsidy, the net income of the GRDB would have been 38 percent lower than reported in the 2010 annual report.  Since the income generated is derived from sales, the profit per export sales dollar would have been lower in 2010 than in 2004, a time when no subvention was provided.

Full Information

There is no doubt that through its monopoly position that the GRDB is able to control its revenue and expenses by dictating the price it receives from exporters and determine the cost that it charges farmers for services rendered and products provided.  But there is also evidence that it has tried to improve the position of the rice industry in the Guyana economy.
However, until full information is available about its entire operations, it would be difficult to determine if it has really turned a corner.

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