Latest update November 26th, 2024 1:00 AM
Those economic time bombs…Booming rice sector could still go bust – Dr. Clive Thomas
Given his analysis of the economy and its revenue earners, local economist Dr. Clive Thomas believes
Economist,
Dr. Clive Thomas
that while the rice market may be booming at this point, certain factors affecting it, leaves the industry poised for a dispiriting future. He believes that it could very well be on the brink of a collapse.
In his recent writings, Dr. Thomas opined that while the sugar commodity life cycle for Guyana is in long-term decline, rice has been in a marked upswing. Contrarily, he said, “The ticking time-bomb that rice is perched” on is due to three factors. He listed these to be explosive growth of output, increasing difficulty in finding lucrative markets and the level of unit production costs.
The economist noted that rice output has grown explosively in the 2010s; rising by more than 100,000 tonnes annually since 2012. He said that much of this expansion has been fuelled by Government support to both supply (production) and demand (finding lucrative markets).
He said, “As is common knowledge, the Venezuelan market is at great risk generating a potential demand/ supply market imbalance. This imbalance risks a collapse of rice and paddy prices later this year, thereby impairing livelihoods, in contrast to what prevailed in the first half of the 2010s.”
In an interview with Kaieteur News last week, the economist opined that should Guyana fail to deal with the aforementioned factors with great haste, then the sustainability of the rice industry could prove to give the new government, a similar kind of hell it is facing in trying to nurse the ailing sugar industry back to good health.
Turning his attention to “the ticking economic time-bomb on which the Guyana Sugar Corporation (GuySuCo) is perched”, Dr. Thomas said that whether this is “politically triggered” with or without malice, its underlying dynamics plainly indicates an explosion in the not- too- distant future.
He reminded that in his previous columns, he restated his long-held conviction that, at this stage of the long-term sugar commodity life-cycle in Guyana: “the industry had passed its tipping-point; thereby dashing hopes of an orderly reform and reconstruction”.
The economist said that GuySuCo has been producing over recent years, if not decades, less and less sugar at greater and greater unit and total costs; while its unit sale price has been declining. He said that the logic of such a sequence is that GuySuCo has reached a point of no return.
Going forward, Dr. Thomas opined that the entity can remain open over the short to medium-term in only one of two possible ways.
“These are either through the provision of regular direct official bailouts and/or increasing borrowings and indebtedness, based on government guarantees. Clearly neither of these is sustainable, given GuySuCo’s present indebtedness, which already exceeds $90 billion and is projected to remain at this level through 2017,” he added.
He said that based on available data on the sugar company, only a distressing picture of the state-of affairs of the company becomes very clear.
The economist said, “Thus, in recent years, sugar output has been at its worst levels in four decades. It produced on average 320,000 tonnes of raw sugar back in the late 1960s to early 1970s with fewer assets.”
Dr. Thomas added, “Moreover, its present day unit production cost, at US0.40 per lb in 2013, has been rising, even though GuySuCo had projected in its Strategic Plan 2013-17, a decline from this year.”
He said that indeed, unit cost has been frequently about three times the world price of raw sugar. The economist said that not surprisingly therefore, net profit before tax has been negative through 2014, even though GuySuCo had, in its Plan, projected a return to profitability this year. He said that this is obviously impossible.
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