Stabroek News
March 11, 2001

The rice industry is on the brink of financial collapse. Mills have been foreclosed and some of the top millers have grave financial difficulties.

Some of the millers are seeking working capital from the banking system. But the $11 billion debt racked up by the industry, and considered bad, has put bankers off. Overdraft facilities, which amount to about $3 billion annually, are also being curtailed.

Industry players continue to clamour for the government to obtain a concessional loan to refinance the industry's debt. Farmers and millers both feel that if the rice industry fails the economy will sink.

"There is a bright prospect for rice despite the current problems, but the indebtedness of the sector has to be dealt with now," Harribhajan Persaud, President of the Guyana Rice Millers and Exporters Development Association (GRMEDA), said on Friday.

To date the government has treated the industry's indebtedness as a banking sector problem. In the meantime, banks, especially the National Bank of Industry and Commerce, are foreclosing on rice millers.

If paddy production increases this year, as is anticipated because of good weather patterns, farmers will be worse off because there will be a glut of paddy on the market and prices will drop. This will add to the hardships farmers are facing and the result will be a shrinking of the rice sector.

Act of faith

"The cost of production last year was greater than the revenue received for paddy and it is an act of faith that people are continuing to plant rice," Essequibo rice farmer Nazir Mohamed said.

Kayman Sankar Investments Ltd (KSIL), one of the largest rice producers in Guyana, is seeking working capital from the banking sector.

"Things are tight right now, but the banks are working with us to restructure our debts," Beni Sankar, managing director of the Kayman Sankar Group said on Wednesday. A similar situation exists at Caricom Rice Mills, a representative of that company confirmed.

Reluctant to discuss his company's affairs, Sankar said the industry on the whole was going through a very bad phase. "My company has gone into parboiling, hoping it will be our salvation for now," Sankar said. He explained that the firm would like to switch totally from white rice production to parboiled rice. This is because the price for white rice has been fluctuating and is now US$208 per ton, an all-time low. The cost of production is US$260 per ton. Parboiled rice, however, carries a price of over US$400 per ton.

Sankar said his firm was fully into installing its parboiling system, colour sorter and packaging machine and had US$1 million more to go when it got caught in a cash-flow jam.

"We are better off than a lot of other millers. This is because they borrowed but did not use it wisely. Some of their businesses might have to die because there is no hope to turn them around," Sankar stated.

His company has not been doing well in the last two years and now paddy produced at the Von Better site in Berbice is being moved to Essequibo for parboiling. Stabroek News understands that workers have been laid off.

Sankar said the government had been trying to assist the sector and that he saw the need for a US$50 million injection into the industry. He also saw the need for the government to introduce a price mechanism so that when rice prices dropped beyond a trigger level, this mechanism would kick in and the government would subsidise the industry.

El Nino

The crisis in the rice sector had its genesis in 1996 when export prices were as high as US$420 per tonne in Europe. Persaud noted that these increasingly lucrative prices, saw the sector making a long-awaited attempt to retool and modernise. But the first blow came a year later with El Nino, the dry-weather phenomenon, followed by La Nina, which brought rains, exceptionally high tides and flooding. During this three-year period, markets were also threatened-such as the Jamaica market-and then the Other Countries and Territories (OCT) route disappeared. The debt to the banking sector by then had doubled.

Last year, rice prices came under pressure as the Euro depreciated. "Many farmers and millers used the good prices to retool as they did not have the opportunity to do so before and they felt they could have paid their debts to the banks. What we did not expect was that the price would drop so much...," Persaud said. He noted that the Suriname rice industry was in a similar situation.

Persaud said the majority of the millers did not want their debts written off but to have space to be able to pay these debts. "We feel the government has an obligation to step in and assist. All we are asking is for the government to seek concessional financing from abroad and help us to refinance our debts until the industry can get on its feet," Persaud said.

He said if no help were to be offered, the industry would not die, but many of its players would, and the sector would become miniaturised, as no one would have the confidence to invest in it. He debunked statements from bank officials that the many of the indebted persons were in a position to pay their debts, saying this showed a lack of understanding of the problem the sector faced.

But while financing is the most crucial hurdle the industry had to overcome, marketing remained an ever-challenging issue.

Markets

All of the players acknowledge that Guyana's rice industry's future lay not in exports to Europe but to the Caribbean with Trinidad, Jamaica, Dominican Republic, Cuba and Haiti as good marketing prospects.

However, a smooth flow of exports to already established regional markets had to be ensured, so that prices were not further jeopardised by sudden surges in supply. To this end, Persaud said, GRMEDA has taken on the responsibility of coordinating rice exports. Additionally, he said, millers had cut out the need for middlemen by establishing bonds in Jamaica and Trinidad, and were looking to do the same in the Dominican Republic so that they could supply rice directly to distributors in those markets.

GRMEDA is negotiating to strike paddy off the list of imports into the region and will be lobbying the EU on the Everything But Arms initiative and its impact on the local rice sector.

In terms of quality and productivity yields, a rustic type variety which is blast resistant is being tested now and the yield, which is expected to average 35 bags per acre will be known this crop.

A large farmer on whom the bank foreclosed, and who wished to remain anonymous, said that his problems arose because two persons to whom he sold rice for export never honoured their payments to him.

Mohamed, the Essequibo farmer, said he was able to keep his head above water because he had not been costing his labour in his operations.

However, he was worried about other farmers, especially those who had cultivated their crops late this year and could not get adequate irrigation. He claimed that since the Lake Mainstay Resort had been resuscitated, the water flowing into the conservancy used by Essequibo farmers had been blocked to allow high water levels for jet skiing and bathing. "This has been a tremendous blow to the cultivation of rice in the area," Mohamed said. He said the flow from the Tapacuma Lake has not been adequate and currently the water supply was almost exhausted. He said many crops would dry up if it did not rain by May 1.

Despite their present situation, Mohamed said, farmers were stuck in the rice industry because of their commitments to the bank and the lack of viable alternative employment.

Some had attempted the cultivation of cash crops and animal husbandry on smaller scales.

Mohamed expressed the view that farmers had not been getting a fair price for their paddy from millers and that there was no system in place to correct this. Sankar's response to this was that farmers made at least a 20 per cent return on their investment, unlike millers, and that some farmers had been living above their means. Mohamed disagreed.

Sankar predicted that paddy prices this year would be between $1,000 and $1,200 per bag.