Guyana's PetroCaribe Rice Compensation Scheme Has Ended: Assessment and Policy Implications

Abstract

work is licensed under a Creative Commons IGO 3.0 AttributionNonCommercial-NoDerivatives (CC-IGO BY-NC-ND 3.0 IGO) license (http://creativecommons.org/licenses/by-nc-nd/3.0/igo/ legalcode) and may be reproduced with attribution to the IDB and for any non-commercial purpose. No derivative work is allowed.Any dispute related to the use of the works of the IDB that cannot be settled amicably shall be submitted to arbitration pursuant to the UNCITRAL rules. The use of the IDB's name for any purpose other than for attribution, and the use of IDB's logo shall be subject to a separate written license agreement between the IDB and the user and is not authorized as part of this CC-IGO license.Note that link provided above includes additional terms and conditions of the license.The opinions expressed in this publication are those of the authors and do not necessarily reflect the views of the Inter-American Development Bank, its Board of Directors, or the countries they represent.http://www.iadb.org 2016 AbstractThe government of Guyana signed a rice compensation agreement with Venezuela in 2009 wherein Guyanese rice exports were accepted in partial payment for imports of Venezuelan oil. The agreement ended in November 2015 and was not renewed for 2016. The scheme had provided stimulus to the Guyanese rice sector, resulting in higher levels of investments in improved inputs and machinery, an expansion in area cultivated, higher levels of outputs, higher levels of exports, and increased employment. The main incentive was the payment of a market premium, averaging 20 percent greater than world price. Despite improvements in yields, the average cost of production for a metric ton of Guyanese rice has remained uncompetitive compared with other leading exporters of rice ( US, India, Pakistan, Thailand, Vietnam), limiting export market diversification opportunities. Because the scheme ended, Guyana must now place all of its exportable surplus in alternative markets. Without dramatic reductions in the cost of production, Guyana's response strategy will be limited to searching for premium bilateral deals and improving value-added processing activities. At present, Cambodia and Myanmar are displacing Guyana's rice exports to the European Union market, and Vietnam has entered into a supply agreement with Haiti, one of Guyana's Caribbean Community markets. This paper assesses the implications of Guyana's vulnerability in this scenario and offers recommendations to assuage the risks of a sharp price reduction. JEL classification codes: F13, F14, F18