Dear Editor,
A local newspaper headline pronounces that inflation is as a result of increasing world prices for commodities, which includes wheat. So by now, everyone should be aware that world prices for commodities are rising higher and higher. Wheat is a commodity whose price has increased dramatically over the past year and continues to increase. In January 2007 wheat was available at $298 US per ton CIF Guyana. As of February 29, 2008, spring wheat from the Wheat Board is quoted by U.S. Wheat Associates at $852 US per ton. Namilco operates a flour mill which processes wheat to make two products; flour and its by-product wheat middling. Wheat middling is used as and in animal feed. Namilco is the only supplier of wheat middling to farmers and the stockfeed industry in Guyana.
Namilco claims that it is functioning at maximum efficiency where it can get 77% of wheat as flour. The remaining 23% becomes animal feed. This gets you the equivalent of 1700 lbs of flour or 17 bags of flour per ton. Namilco advises that it currently sources wheat at $545 US per ton CIF Guyana. The cost of the wheat only in a bag of flour would be $545 US divided by 17 = $32.05US or $6,410G per bag (at $200 exchange rate). At Namilco’s current selling price per of $6000 per bag, Namilco claims that it is losing money because it is not making enough to cover even the cost of the wheat. It still has to contend with additional costs of manufacturing and distribution. This as you can see is simple arithmetic and anyone can verify if Namilco is telling the truth. (The sources for my information are the Wheat Board and Namilco).
Based on this simple calculation, it is apparent that Namilco is losing money on every bag of flour it sells. Last year July, when Namilco attempted to pass on the increased cost of wheat by increasing the price of flour from $4387 to $4978 per bag, the market was opened up and import licences were granted to a few individuals and businesses. Imported flour entered the market from National Flour Mills (NFM), and was sold at $4460 per bag. Namilco promptly dropped its price to $4612 per bag in an effort to retain its customers, thus proving that competition is good for the consumers.
However, it would appear that all is not what it seems. At this point in time, Namilco claims that it has lost 25% of the market. Namilco further claims that what is happening is not fair or legal in that flour entering Guyana is being “dumped”. Dumping in international trade occurs when “a manufacturer in one country exports a product to another country at a price which is either below the price it charges in its home market or is below its cost of production”.
The price for flour in Trinidad & Tobago is $26.43US per bag ex-factory, however, the same flour is being exported to Guyana at $19.35 US per bag, $7 lower. The NFM export price to Guyana is both below the price in the home country and also lower than the cost of production; hence it is being dumped in Guyana.
What makes it somewhat more difficult for Namilco is that NFM has the Government of Trinidad & Tobago as its major shareholder; in other words, with Trinidad & Tobago Government’s petro-dollars backing its losses, it can afford to dump flour in Guyana, a clear contravention of the Revised Treaty of Chaguaramas. Namilco on the other hand, is a private corporation and will not sustain losses indefinitely. While it may be able to carry losses for a period of time, offsetting it against former profit, there is a limit. Private companies do not operate to make a loss over a long period. In the face of indefinite losses, closing is a better alternative for Namilco. From 1986 to 2004 Namilco facilitated the US PL480 programme for the GOG. This programme saw the US Gov’t supplying wheat to the Guyana Government. Namilco then buys the wheat at market prices from the GOG and these monies were used to fund special infrastructure programmes, such as sea defence, farm to market roads etc. This necessitated a close working relationship between Namilco and the GOG. Namilco’s operations were always closely monitored by the GOG; all price increases had to be pre-approved. As such, Namilco was not a true monopoly.
For a period of 22 years; from 1986 to 2007, Namilco and the GOG worked hand in glove to achieve common objectives; yet today Namilco is being publicly vilified for attempting to recover its cost of production. Will Namilco consider it prudent to close its doors in such an environment?
The following are the implications from the closing of Namilco:
Loss of direct manufacturing jobs.
Loss of downstream distribution and support services jobs.
Loss in government revenues annually.
Loss of ability by GOG to have any influence on the price of flour.
Loss of any possibility of reviving the PL-480 or similar programmes.
Loss of supply of wheat middling to farmers and stockfeed industry which will result in increased prices for chicken, beef, pork and other livestock dependent on the wheat middling feed.
Loss of credibility by the GOG to US investors, that Guyana is truly open to investments.
Loss of confidence in the GOG that it is possible for businesses to establish and maintain a sound working relationship.
All of these losses for Guyana and the GOG will be mirrored in gains for the exporting countries.
In the face of rising world prices for commodities, is it prudent to make Guyana dependent on the vagaries of the world market for the supply of flour, a basic food item?
In international trade, dumping is illegal. COTED is the organization that regulates trade among members of CSME. Dumping is illegal in CSME. Namilco claims that despite representation and picketing of COTED it has had no relief from the illegal dumping of flour in Guyana.
The current low price of flour to the consumer is not as a result of true competition; it therefore will not last. The low prices for flour that Guyanese are currently enjoying is as a result of a deliberate strategy by companies importing flour to gain market share. NFM is already on record as saying that these prices are introductory.
Soon, the Guyanese consumer will have to pay world prices for flour. The price of wheat today on the world market is $927US per ton CIF Guyana. This translates to $54.53US for the wheat only in a bag of flour. If you add 20% for manufacturing and distribution costs and profit, market price could be $65.43US or $13,086.
If Namilco closes its door, be assured that dumping of flour will immediately come to an end and the Guyanese consumer will have to pay world prices for flour.
Will the Guyanese public be able to absorb the shock of going overnight from the current $6,000 to $13,000 per bag of flour? In the face of rising world prices for wheat, Barbados and Jamaica have already announced a subsidy on flour from their local mills.
The options for the GOG will be to either subsidize flour entering the country or attract another milling company to Guyana. Will the GOG have the credibility to attract another flour mill to Guyana?
Yours faithfully,
(name and address
provided)
