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Sugar and rice output booms

Seven years ago, the economy of Guyana was in a shambles. Sugar and rice production, which accounted for half of the country's exports and foreign exchange, had dropped by half in just four years. One-fourth of the country's agricultural equipment and machinery was out of commission due to lack of foreign exchange to buy spare parts.

It was a vicious circle: the lower the production and exports, the less foreign exchange was available to buy spare parts and machinery, further reducing production.

In 1990, the IDB stepped in to help break the cycle with a $26.2 million emergency loan to revive the country's rice and sugar production. Guyana used the resources to buy 525 tractors, 33 combines, 107 motorcycles, 311 other pieces of farm equipment, spare parts and agrochemicals from Brazil, France, Switzerland, the United Kingdom and the United States.

At the same time, Guyana's government enacted a number of agricultural, banking and export policy reforms that turned over the management of government-owned sugar estates to a private firm and privatized the public rice milling operations.

The combined effects of the new equipment and the reforms were dramatic. Rice and sugar exports both have increased more than 260 percent since 1990. Sugar yields per hectare have increased 25 percent and rice yields, 31 percent.

"There is little doubt that the provision of inputs from the IDB loan resulted in increased production that is still continuing," says Charles Kennard, chairman of the Guyana Rice Development Board.

The revival of Guyana's rice and sugar industry had a significant effect on the country's economy. Production, which had been declining an average of 2 percent a year from 1985 to 1990, has grown an average of 7 percent annually since 1991.

The loan had other effects. According to a recent IDB report, the availability of foreign exchange increased competition among importers and distributors, resulting in more goods on the market and generally lower prices.

Before 1990, two distributors controlled 90 percent of the market for agricultural inputs and offered only three brands of tractors for sale. By 1994, according to the report, 16 distributors were selling eight tractor brands. The greater availability of spare parts caused mark-ups to drop from nearly 100 percent to 44 percent and "prices either fell substantially or remained static," states the report.

During the early stages of the project, officials determined that the lack of foreign exchange was not the only factor constraining sugar and rice production. Lack of readily available credit for farmers was also a problem.

"Farmers were required to pay distributors for inputs at the time of delivery," the report notes, "and they were finding it hard to make this full payment immediately. Distributors only imported equipment after they obtained a firm commitment from farmers to purchase the items."

The IDB's Guyana office worked with government officials to eliminate bottlenecks and increase the role of the private sector in providing credit. "We designed a new system to help farmers get credit without changing the Bank's procedures for carefully reviewing public bidding and disbursements," says Charles Greenwood, the Bank's Guyana representative. "If we hadn't done this, the program probably would have been cancelled," he concluded.
 

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