Venezuela to cancel rice deal with Guyana after November– says Finance Minister

Jul 09, 2015 News

By: Kiana Wilburg

The spirit of brotherhood which exists between Guyana and Venezuela may perhaps be running thin. The Spanish-speaking territory is making serious moves to wean itself off of Guyanese rice.

Finance Minister, Winston Jordan, said that during his recent visit to Venezuela, he was told in no uncertain terms that the South American neighbour would no longer be interested in renewing the oil for rice barter under the PetroCaribe deal which will come to an end on November 16, next.

He said that Guyana was told to find new markets for its rice.

Venezuela’s decision regarding the rice deal comes at a time where it is claiming sovereignty over Guyana’s waters since the significant oil find by American oil giant, Exxon Mobil just 100 miles off of the Stabroek Block.

The issue is one which has seen the Government displaying complete resistance to Venezuela’s declaration and even its rhetoric over the past few weeks.

Yesterday, Jordan said that Venezuela claimed it had hinted to the past administration as well as to top officials in the Guyana Rice and Development Board that Guyana needs to start looking at other markets.

Based on records over the past two to three years, Jordan said that it would show that Venezuela was scaling back on the volume of rice it was taking from Guyana.

Venezuela finds new markets

The oil-rich country has however, entered into new rice deals with rice-producing giants like Uruguay. The South American country has agreed to provide Venezuela with 120,000 tonnes of rice by the end of this year. This deal was struck so that Uruguay can clear its US$400M debt it accumulated from taking Venezuela’s oil at concessionary prices.

According to El Pais, a leading newspaper in Colombia, this is the first time that the Government of Uruguay has participated in a rice export agreement which will be signed officially on July 17.

Finance Minister Jordan said that Venezuela claims that its decision to not renew the rice deal after November is mainly because it has secured rice shipments from Suriname and has enough local production to satisfy its domestic demand.

Venezuela and Guyana –new ventures

But Venezuela is not cutting Guyana off entirely. Jordan said that the Spanish-speaking country indicated “interest” in buying Guyana’s rice next year, but a very modest amount to support its buffer stocks.

He said that Venezuela even communicated “interest” on entering into a joint venture agreement with Guyana to pursue rice markets together.

He said that Venezuela is proposing to establish an office within its borders and Guyana would take its shipment to its port. The rice would then be shipped from there to countries with which Venezuela has good relations, such as Iran, a huge consumer of rice.

Jordan said that while both initiatives are far from being set in stone, Venezuela has agreed to receive a high level team from Guyana to discuss both options. Though Venezuela was successful in striking more beneficial rice agreements with other countries, including one of Guyana’s CARICOM sisters, it has expressed “interest” in other products Guyana may have to offer.

Clearing oil debts

With the rice for oil agreement set to come to an end later this year, the Finance Minister said that he is not too worried about writing off the debt incurred.

He said, “Under the PetroCaribe deal, Guyana gets oil from Venezuela at very concessionary prices. We receive the oil, pay for half upfront and the other part is paid off within several years. But at the same time we are accumulating debt. So, to write off the debt, rice was agreed to be used under the PetroCaribe agreement…”

The Finance Minister continued, “Had Guyana not been bartering with rice, our debt would have been between US$500 to US$700m. Now it stands at US$190M. By the time the agreement is ended in November, that debt would decrease but after November it would increase again because we will continue to benefit from the oil at concessionary prices but we won’t have rice to write it off the debt like we used to.”

With this new development, Jordan said that it becomes even more imperative for Government to redouble its efforts to locate new markets for Guyana’s rice as quickly as possible.

Economic time bomb

It was only June 14, last, that Presidential Advisor on Sustainable Development, Dr. Clive Thomas, predicted that like the ailing sugar industry, the booming rice industry could be sitting on another economic time bomb.

He had said that certain factors affecting the rice sector leave it poised for a dispiriting future.

Dr. Thomas 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 had 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.”

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.

Finance Minister, Winston Jordan, said that he agrees implicitly with the comments of the Presidential Advisor noting that farmers for some time have been responding to Venezuela’s “concessionary price” and will have to adjust to suit new times ahead.

“The Venezuelan market is one that you wouldn’t normally find out there. The country was taking practically 30 to 35 percent of our rice exports. Our rice farmers will have to prepare themselves to operate in a regular market very soon. What they were getting was what is called an artificial market price from Venezuela, a price that is concessionary, a price that in reality, it would be extremely hard to get on the world market.

“And what you find is that a lot of rice farmers may have taken loans and ploughed almost all their resources into the rice sector because of this agreement they were benefitting from. That will now have to change. They will have to change their production to meet the world market quota,” the Finance Minister explained.