No one should be clamoring for this kind of food policy

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Ben D. Kritz

Ben D. Kritz

In response to a report—attributed to a source in the Palace by the Manila Standard on Tuesday—that the rice import boast by President B.S. Aquino 3rd in his SONA had caused world rice prices to increase, Department of Agriculture Secretary (well, partial Secretary) Proceso Alcala provided an interesting explanation for continuing high rice prices in the Philippines on Wednesday.

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He said Philippine rice is expensive because production costs are much higher here, about P10 per kilo of palay, versus the equivalent of about P8.40 in Thailand and P5.40 in Vietnam.

Two things are immediately apparent about Alcala’s statement.

First, it is not actually an answer to the accusation—a politely implied accusation, but an accusation nonetheless—that President Aquino’s big mouth might very well have affected global markets to the Philippines’ disadvantage. It is remotely possible, of course, that Alcala was not actually speaking with Tuesday’s report in mind, but that would be hard for most observers to believe; the Aquino Administration has already established a track record for displaying extreme discomfort with implicit criticism from global sources and a compulsion to respond to it quickly, regardless if the response actually makes any sense or not.

Second, it is a ludicrous explanation for high or increasing rice prices under any circumstances. Alcala blamed the high cost of production on the heavy reliance on manual labor in the Philippine rice sector, but that has been a characteristic of Philippine rice farming ever since the Cordilleran natives began hacking the first terraces into the mountainsides, whereas the steep price trend has only been going on for a few weeks.

Alcala’s contention that “production losses” lead to higher costs despite the dependence on relatively cheap manual labor doesn’t hold any water, either, because Philippine rice yields are respectably comparable to those of most neighboring countries—roughly 3.72 MT of palay per hectare, versus just 2.8 MT on average for Thailand, 4.6 MT for Indonesia, and about 5.6 MT per hectare for Vietnam. And Philippine yields have been generally increasing over the past couple of years, one actual bit of progress to emerge from the otherwise unimpressive effort to achieve rice “self-sufficiency.”

Price is a function of supply and demand; it’s a simple economic principle. If there is enough supply to meet or exceed demand prices will decrease, regardless of production costs. Indeed, there is much room for improvement in the efficiency of Philippine rice farms, but that is not at all the main issue right now. In the past four years of the Aquino-era Department of Agriculture, the country has gone from a state of relatively stable supply—albeit one that was significantly back-stopped by imports, something that every credible forecast model says will be necessary for the country into at least the next decade, anyway—to one of tight, if not somewhat deficient supply.

Because imports are viewed with such distaste, they have been reduced to give the appearance of improving domestic supply, with the excuse “they are just for ‘buffer stocks’” being applied to explain such imports as could not be avoided. The scheme eventually caught up with the government this year, and the missing imports needed to be replaced almost all at once, which is why the programmed imports for 2014 jumped from 500,000 MT to 1.8 million MT in a relatively short period of time, and may reach 2.3 million MT—almost exactly the amount forecast models based on actual math and not politics say the Philippines needs to import annually—if the standby authorization for an additional 500,000 MT is invoked before the end of the year.

Three factors combined to drive up rice prices. First, Typhoon Yolanda put a large dent on supplies. It should have been a temporary dip, but because the government was low-balling its import requirements for so long, it created a bigger supply vacuum than it should have. Ordinarily, replacement stocks would have already been in the pipeline, and the reduction in supply due to the calamity would have only lasted a couple of weeks at most. Second, the government’s scrambling to import the needed supplies caught the Philippines’ preferred (there are hints that certain issues prevent the Philippine government from buying its rice elsewhere, though no clear explanations of what those may be) supplier Vietnam flat-footed, and it is now struggling to catch up with its deliveries.

And third, President Aquino made the incredibly stupid pronouncement in his SONA that rice imports would be increased, because he forgets at all the wrong times that what he says in public represents the formal position of the Republic of the Philippines. What he issued was a guarantee to the global market of at least several hundred thousand metric tons of demand, it was duly reported by every news source with an interest in that sort of thing (rice market monitor Oryza posted it within two hours of his speech), and rice prices in the Asian market—especially for Vietnamese rice—immediately began to increase. Local farm gate prices are not affected quite so much by the market movement, but local trade prices are, hence the steep rise in speculative hoarding and rice repackaging.

While most of the public conversation these days revolves around the Palace-manufactured “clamor” for Aquino to violate the law of the land and remain in office beyond his six-year mandate, people ought to stop and spare a thought for some of the real-world implications of that. “Not being able to purchase basic food needs” because of unnecessarily high prices or lack of availability is a circumstance one would think most people would prefer to avoid.

ben.kritz@manilatimes.net

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1 Comment

  1. It is very easy to understand why rice prices keep on spiraling since last year. And I think the big factor was there was an allegation and cases were actually filed against Alcala and his cohorts regarding the padding of the negotiated price of rice imported from Vietnam. The high priced imported rice last year impacted on the retail prices of rice in the market and since then price of commercial rice keeps on increasing. Another factor perhaps is the unscrupulous practice of some traders by making an artificial shortage of supply through hoarding. I cannot understand why Aquino does not personally and quickly attend to this grave problem which is affecting his poor bosses.