Paddy, Rice and Markets

Apr 04, 2009 Editorial

In addition to raking in valuable foreign exchange, the rice industry employs the largest slice of our labour force. It might not have the glamour of, say IT, but it certainly brings home the bacon.
Recently, it has experienced some agitation, centered primarily on the West Coast Demerara, where a group, purporting to represent paddy producers, is demanding higher prices from millers.
They claim to be an “Action Group” within the Rice Producers’ Association (RPA) and accuse the main body of not promoting their interests with enough vigour.

We have opined before, that sugar is too important to our country for it to be made into a football, political or otherwise, by any one group – and we hold the same view of rice.
The individuals that represent the various segments of the industry – farmers, millers and exporters – will have to work out a modus vivendi so that as a whole, they literally do not end up losing “rice and husk”.
First and foremost, they will all have to decide exactly what it means to operate under “market conditions”.
Rice reached its greatest output back in the sixties, under the first PPP administration, when the government-sponsored Rice Marketing Board controlled the export of the cereal.

Under the PNC, the government extended its controlling into milling and established prices for paddy that implicitly meant a greater than 100 per cent tax on farmers.
It nearly destroyed the industry. With the return of the PPP, the industry was completely liberalised. Many farmers, including some in the West Demerara group, do not seem to appreciate what the latter dispensation implies for prices of their product.

Unlike what had obtained in the past, the price of rice – and therefore its precursor, paddy – both domestically and internationally is established by market forces of supply and demand.
From this, one would suppose that all the players in the industry would follow this variable most diligently along with all the other factors that may cause it to fluctuate.

For instance, since the world consumed more, more rice was produced in five of the last seven years, and one would have expected prices to be consistently high over that period.
It was not – one reason being that all of the major consuming nations maintain reserve stocks into which they can dip to smooth out shortfalls – and ameliorate price rises.

Since the 1990s worldwide rice productivity has fallen (while ours has risen) which could have led to price increases but the drop was made up by increase in another variable – total acreage cultivated.
Looking at the long term, the latter factor has an upper limit but there are yet other variables that could upset projections – the discovery of higher yielding varieties, for instance.
Our present dispute was precipitated by very high world market prices (over $1000 per ton) even though production was at an historic high.

The relevant variables then, were massive purchases by the Philippine Government when their stocks ran low and interventions by India and Vietnam restricting their rice export markets.
These were all basically political, rather than economic decisions, so these also play a part in determining prices. The price has now fallen to almost half of its historic high and the question has to be – will it stabilise or continue to drop?

In the present, only the most obtuse would aver that the world economic crisis would have no effect on the price of rice. The question is in which direction will it go?
Will the lower income of millions of unemployed Chinese force them to consume more of the cheaper staple rice in the near term and raise prices? What are the levels of Chinese rice stocks?
Will the high production resulting from high prices (and favourable weather, unlike in Guyana) that lured higher investment into last crop depress prices further?

But in some countries, like Philippines, higher prices for inputs and the credit crunch have discouraged production and the government may have to replenish stocks once again.
The point we wish to reiterate is that participants in the rice sector will have to monitor world market conditions in a much more nuanced fashion because of its inherent volatility. And please, no political opportunism.

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