Today I want to continue on the subject of the drying floors since I believe that considerable sums have already been spent in constructing them and considerably more is likely to be spent for others.
What must be clear is that the decision to construct these floors was not an idea pulled from a hat. It in fact, is believed to have emerged following discussions over a period of time between rice farmers and the government.
The main economic arguments in favour of building these floors is that they will allow farmers to not only reduce the cost of drying their paddy but also allow them to withhold selling their paddy thus allowing them to not have to undersell.
These are fallacies. Firstly, the farmers have always had ingenious ways of drying their paddy, the most cost effective of which was to dry their paddy on the roadway. This has been a historic practice throughout Guyana. No doubt however it is not safe nor can it be encouraged any longer and thus many farmers have reverted to drying paddy on the drying floors at rice mills, for a fee. Thus, to the extent that the fees paid for the use of the floors built by the government is cheaper, one may expect that it would be economical to build these floors.
Unfortunately this is not necessarily so. It must be appreciated that farmers usually take their rice directly to the mill for drying and refining. Thus there is one transportation cost involved. If they dry on the roadway it is usually near to farms.
So unless the drying floors are in close proximity to the rice farmers, farmers may have additional transportation costs.
The second point is that not many farmers have storage for their rice. For small farmers, rice is stored under their homes. Larger farmers may have barns.
However, there is always the threat in Guyana from moisture and thus the option for most farmers is to move their paddy quickly from the farm to the mill.
Thirdly, the market is such that farmers are price takers. This was clearly evident in the last crop during which there were complaints about the prices paid by millers.
None of the protests that were made, or for that matter the interventions that were pursued by the government, were able to push prices up and many farmers took losses. They took their losses because most of them had to sell.
The nature of the industry is as such that the vast majority of farmers cannot hold out for prices. They simply cannot since they have little negotiating power over the millers. And they have little negotiating power over the millers because of the cash-strapped nature of the industry.
Most farmers are what are known as crop to crop farmers, that is, whether they decide to plant a second crop often depends on the first crop and what happens this year decides whether the farmer can afford to plant in another year. The industry is volatile. Input costs are high and returns low. Poor weather can wipe out an entire crop and thus rice farming is extremely risky.
The industry is heavily indebted. A few years ago it almost collapsed under debt and the government was forced to provide a bailout package. Despite the high prices of two years ago, many farmers are heavily indebted. Many farmers owe the banks and they have to make payments if they are to stay in a position to enjoy capital for replanting.
It is therefore not easy for farmers to store rice in the hope that they can wait for higher prices. Storage has a cost and means also that payments have to be deferred to the farmers’ creditors. Theoretically, the drying floors would allow farmers to store their paddy but the reality is that this theory cannot be practice because farmers have expenses and most of them need the money right away in order to go back into crop.
Another important consideration is the size of these drying floors. Most farmers reap at the same time and therefore in one area there be many farmers who wish to dry at the same time. How big are these drying floors and how many farmers can dry their paddy at the same time considering the process involved? And also to be considered is the fact that farmers do not wish to be waiting too long to have their paddy taken to the mills where there may also be some waiting period before milling takes place.
A few years ago, the government spent hundreds of millions of dollars because some young people in the country came up with projects for funding. We all know what has been the record as regards those projects.
The same mistake must not be made in the rice sector. It may be easy to accede to the lobby for additional drying floors, but does it make economic sense to go down this route?
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