The state-owned bank entrusted with extending $27 million in emergency loans to millers to purchase rice paddy has marginally lowered the interest rate on these conditional loans in an effort to shorten some of the strings attached.
The Rural Development Bank (RDB) announced late on Sunday that it would lower the annual interest rate on loans to rice millers to 7 percent, from 8 percent.
Kao Thach, the bank’s CEO, said yesterday that the revised interest rate aimed at helping farmers get more revenue from the sale of paddy rice by encouraging millers to accept a floor price. Under the terms of the lending package announced last week, millers who accept the loans are required to purchase paddy rice from farmers at $210 per tonne at the farm gate or $225 per tonne at their warehouse.
The package’s announcement came after the farm-gate price of paddy rice fell precipitously from $240 per tonne in August to $192 per tonne earlier this month.
“We think it is a suitable interest rate,” Thach said of the revised rate. “Many millers have suggested that we lower the interest rate much more than this, but this new rate is reasonable and acceptable for many people.”
None of the loans have been disbursed yet, Thach said, explaining that the bank is still evaluating the applicants. He expects the first loan to be issued later this week.
According to RDB’s announcement, the bank has received loan applications primarily from millers in Battambang, Pursat and Pailin provinces, with a combined 8,000 tonnes of paddy rice offered as collateral. The bank has agreed to provide loans up to 70 percent of the collateral’s value, which suggests a total of $1.26 million could be disbursed to these millers.
Phon Nary, director-general of Heng Huch Rice Mill in Battambang province, said while the RDB’s 7 percent interest rate was lower than the going rate at commercial banks, the stipulation that the funds must be used to purchase paddy from farmers at the above-market rate of $210 per tonne “makes things difficult”. At that price, millers have no margin for profit, he said.
“We know if we buy paddy at a very low price, farmers will die. But, if we buy paddy from farmers at a high price and sell milled rice at a low price, we will also die,” he said.
Nary explained that the market price of milled rice has also dropped, falling from $620 per tonne in August to about $550 per tonne. At that price – factoring in the costs of electricity, transport, labour and milling – he said millers could squeak by with a profit. However, heavy competition has pushed some local millers to offer their product at just $500 per tonne.
“The price of milled rice is decreasing, but we’re required to buy paddy at an above-market price,” he said. “We might take a loss and so we don’t dare to take the loans.”
Song Saran, CEO of Amru Rice, said that he is currently tapping his company’s reserve funds to purchase paddy from farmers, but might consider taking a loan from RDB when the main rainy season harvest of fragrant rice begins next month.
He said at 8 percent annual interest, many rice millers would prefer to borrow from a commercial bank, even at a slightly higher rate, in order to avoid the conditions attached to the RDB loan. However, by lowering the interest rate to 7 percent, the bank has made it more appealing.
“We want a 6 percent annual rate, but 7 percent is at least a bit better and acceptable for the majority [of millers],” he said.
The government’s announcement of emergency loans to millers and its call for officials and wealthy patrons to purchase paddy from farmers have had some effect on stabilising rice paddy prices, according to farmers, though prices remain low.
Seung Soda, who farms rice on his 12-hectare farm in the Sangke district of Battambang province, said he sold his paddy for a low $188 per tonne – though this was higher than the prices he was offered last week.
“The price is better than before, but we cannot earn profit from it yet,” he said.