Minister of Consumer Affairs Danny Montano has made a request for the removal of the Common External Tariff (CET) on imported rice, a move that he hopes “would go toward lowering the price immediately for the consumer.”
But at least one Senior Economist in the Ministry of Trade is not convinced that the attempt to have the tariff removed, even if it is successful, would have the desired effect.
The CET, which is imposed on goods imported into the Caricom region from extra-regional suppliers, is set at 25 per cent for rice, while for all other agricultural commodities, is set at 40 per cent. The Consumer Affairs Minister is contending that the complete removal of the tariff is “a sensible, short-term measure to provide immediate relief” for consumers.
Minister of Trade Kenneth Valley agreed that it was the local shoppers, buying rice on the supermarket shelves, who have been effectively absorbing the 25 per cent tariff paid by importers. However, the accusation previously made by Montano that the NFM was leading a “rice cartel” prompted a sober response from the Trade Minister, “I think we need to check that. I don’t know whether that’s a correct statement.”
Montano, who had previously implied that at least part of the blame for steep rice prices fell squarely on rice importers’ shoulders, remained adamant in a telephone interview with the Business Express,“My job is to fight for the consumer and that is what I am doing. I am not an expert in tariff agreements. Anything that I say in that regard is speculative. But my view remains that the CET should be removed on imported rice.”
However, an official in the Trade Ministry has pointed out that the removal of the tariff would not necessarily produce a reduction in rice prices, “If one gets cheaper rice, it is logical that one could sell it cheaper, but that does not mean that one will sell it cheaper. The removal of the CET could provide the opportunity to make the rice [price] lower, depending on market conditions. Whether it will happen depends on the vagaries of how much competition there is…”
The question of competition, therefore, is a critical element in the current rice-price equation. The Trade Ministry official revealed that the “competition” in rice importation consists of “about six” rice importers operating locally, adding, “NFM’s major competitor, Hummingbird, imports rice exclusively from Guyana. It is really a subsidiary of a Guyanese operation.”
Asked what assurance local consumers had that the handful of local rice importers and retailers were selling the commodity at the best possible price, Valley responded, “The competition in the market. If you have a situation where anybody can bring in the stuff, you expect the market to reign.”
But Valley’s technician explained that, not only is the principle of competition deficient as a safeguard of the consumers’ interest, but in addition it does little to promote regional loyalty, “The importer is saying, ‘I will buy in the region up to this price but anything above that I will buy from outside.’ That is a straight, bottom-line, business decision that has nothing to do with any loyalty. Loyalty is if you say, ‘Even though it costs more in the region, I will still buy in the region.'”
Competition, which is the defining characteristic of the emerging globalised free trade economic environment, favours the rice importers in their sourcing of the commodity but does not ultimately necessarily favour the consumer,
“There is often a differential between world prices and regional prices. The price you would pay for US [rice], very often, would be less than the price you would pay if you were to go for Guyanese rice. But by the time you add on the CET, it brings the price to the same level or more than the Guyanese rice.”
By this logic, US rice would appear to be the more profitable import commodity, since, as Valley had pointed out, that added expense of the CET could simply be passed on to the consumer.
Moreover, the official revealed that this difference in prices was not due to an inherently higher cost of production for Guyanese rice, but was the net effect of foreign governments’ subsidisation of rice production.
“One argument is that the price on the world market is a subsidised price, which puts regional producers at a disadvantage,” he said.
He said that the tariff, which is supervised by the Council for Trade and Economic Development (COTED), a forum of Caricom Trade Ministers, and is intended to provide protection for regional producers by artificially inflating the prices of non-regional imports, and major rice producers within the region had “sensitive interests” which they protected vigorously.
Montano, however, was hesitant to concede that the removal of the tariff would impact regional rice producers negatively, “If we were to go with FTAA, there would be no tariffs,” Montano argued, making reference to the proposed Free Trade Agreement of the Americas, which would create a free trade zone comprising 800 million residents in 34 Western Hemisphere nations if it is created.
While he claimed to be “sympathetic to the Guyanese side”, Minister Valley, who is leading the campaign for the FTAA headquarters to be located in Port of Spain, confirmed that National Flour Mills (NFM), the nation’s major rice importer, continues to import non-regional rice and to pay the CET.
“The only way that they would not pay the tariff is if they buy the rice from Guyana, or from a country within the region,” said Valley. “If Guyana is not producing the rice that they want, they would have to apply for a waiver from Caricom. In order to get that waiver, Guyana would have to agree.”
But if their track record is any indication, Guyana is not likely to vote in favour of the tariff waiver.
“In the past, we have tried on several occasions,” said the Ministry official. “But we always have Guyana’s interest and Suriname’s interest to consider, as a region. There were times when Guyana could not supply, and at those times we would have gotten through with the waiver. They have since organised their business, and it has become much more difficult to secure a waiver.
But Montano himself is not optimistic about the outcome of his request, “If I were in the Ministry of Finance, I doubt I would agree to it,” he said.
“I doubt that [the Ministry of] Finance and the Central Bank would go along with it. And I doubt whether Caricom would agree. Even I–if I were wearing a different hat–I would probably take a different stance.”
Montano, the self-proclaimed “leader from behind” and defender of consumers’ interests, is now putting the onus on Valley to carry the process forward.
“It’s in his lap,” he said, with an air of deference rather than resignation, “It’s out of my hands.”