Larger rice farmers eligible for debt relief on case by case basis
By Gitanjali Singh
Stabroek News
June 18, 2003
Rice farmers who owe commercial banks over $10M are now eligible, on a case-by-case basis, for a restructuring of their loans following an agreement between the government and the banks.
The government has agreed to grant tax relief on interest income from the restructured loans, estimated to be worth $7B, which were non-performing and previously provided for, once the interest rate does not exceed 10%. The restructuring is also stipulated to cover 10 years.
But what is not clear is whether there is any provision in the agreement for a write off of interest as was done for rice farmers owing under $10M or whether the commercial banks would benefit from tax relief on the sums provided for being written back onto their books and yielding profits.
The government had last year reached agreement with the Guyana Association of Bankers for the restructuring of the debts of 1,300 rice farmers with portfolios under $10M. According to that agreement which applied to all farmers in that category, the banks were to write off the interest, suspend 25% of the principal and restructure the remaining debt over 10 years at interest rates not exceeding 10%. The large rice farmers were not dealt with and the banks were left to deal with them on a case-by-case basis.
However, this led to a significant shake-out in the rice sector with a number of large farmers/millers in receivership and their operations closed.
More recently, the government entered an agreement with the Guyana Association of Bankers to provide relief to larger farmers on a case-by-case basis with provisions for interest write off. This agreement, however, has not been made public.
One source indicated that the correspondence sent out to large rice farmers as a result of this new agreement is very ambiguous and it is not clear whether the banks would be inclined to offer any meaningful relief to large farmers.
General Secretary of the Rice Producers’ Association (RPA), Dharamkumar Seeraj, on Monday indicated that 80 large farmers would benefit from this new agreement. He said it was his understanding that the agreement only provided for relief on interest payments and had no provision for the write-off of the principal.
The total debt of the rice sector in 2001 was estimated at $16.6B with $12B of this made up of principal. Of this, $7B was believed to be associated with large rice farmers’ debt. In 2001, the commercial banks made a total provision of $6B against the debt or 50% of the principal sum. This figure increased over the last two years and saw a deterioration of the bottom line of many of the commercial banks.
The rice sector has argued the need for a joint-relief package from the government and banking sector, arguing that no one was benefiting from the current situation and a package could have been designed with tax relief on the government side and write-offs on the banking side to allow for the viability of the rice sector.
As it is, commercial banks are not required to pay taxes on balances declared as provisions against loan losses. These provisions have been increasing in recent years, which means fewer taxes for the government. However, when these provisions are released, the resultant increase in profits generated from the recovery of the loan are taxed at 45%. If dividends are paid on the remission of this profit, a further 15% withholding tax (now 20%) is payable.
However, because of increased provisioning by commercial banks over the years, the banks’ profit margins decreased and the government saw lower taxes. In the wake of this, many businesses went under in the rice sector.
Seeraj indicated on Monday that in the past crop alone a number of rice farmers/millers were forced to close their operations including Ivor Allen Enterprise, Kayman Sankar’s Essequibo and Blairmont locations, Angad Rupee’s location on the West Bank and at Bush Lot, Genesis at Cane Grove, Caribbean Rice Industry and Dhaneswar’s Industries Limited among others.
He indicated that as a result of these closures, the drying and storage capacity has been reduced and farmers are forced to sell their paddy on unfavourable terms. Seeraj said that in some cases farmers had been paid six-month post-dated cheques. He said they were forced to accept the conditions, as they had no other means of selling their produce.
Seeraj said the same amount of land was cultivated in this last crop but estimated that the intake capacity by millers was down by almost half as a result of the closures of the mills and hence farmers had to face atrocious buying conditions.
“Some of the millers are exploiting the local situation where the farmers have limited alternatives,” Seeraj stated. He said that the cost of producing a bag of paddy was between $950 per bag to as high as $1250 per bag.
However, farmers face prices of $1100 and $1200 per bag even when the agreement of sale was premised on higher prices.
He said that problems were also being experienced in the grading and weighing of paddy, adding that all of the conditions result in a lower income for farmers.
Seeraj said that while paddy prices were dropping, costs for inputs were on the rise and noted that urea prices were now $2,550 per bag against the $2,200-$2,250 average last crop. He expects the prices to reach $2,800 this crop.
Triple Super Phosphate prices now average $2,700 per bag and he sees this going up to as much as $3,000, compared to an average of $2,500-$2,700 last crop.
The RPA makes recommendations for tax relief on fertiliser but Seeraj notes that trans-national companies have a monopoly on fertiliser and chemical production.
Asked whether the arrangements for small farmers’ debt rescheduling had been progressing well, Seeraj said commendation for the banks’ approach had been loud.
