“Imported rice, as a rule of thumb, must be in the country before the typhoon season (the lean months) arrives”
Last Monday, DOF Secretary Ben Diokno was quoted as having admitted the economic team was not consulted when Malacanang imposed a price ceiling on rice.
In fact, Diokno said he and NEDA’s Arsi Balisacan were in Tokyo for high level talks when the announcement came, and “of course, we were shocked.”
In our article Thursday last week in this space, we wondered who could have advised the president, and surmised it could not have been the economic managers, so Diokno’s denial confirmed it.
DTI and DA are both part of the economic team, so are we to assume that they, particularly DTI, did not call Diokno and Balisacan in Japan, and unilaterally advised the president to impose the ceilings?
This gives credence to whispers in the economic community that somebody else who is not part of the economic team advised the president, and being the agriculture secretary himself, he jumped into the price ceiling action.
The recent move reminds me of another story, when candidate BBM pledged he would bring down the price of rice to P20 per kilo, a promise he sustained after being the newly proclaimed president of the land.
The story goes like this: when pundits scored candidate BBM for having no platform other than “unity,” some campaign supporters who knew little about economics, much less the law of supply and demand, advised him to promise the P20 rice.
They harked on the days of President Erap when NFA sold rice at P16.50 to retailers (1998) who in turn sold to the consumers at P18.
Then, during the latter part of PGMA’s time, since NFA could not sustain the subsidized price, they upped the price to P23 release price to retailers who in turn sold it at P25. Even at that price, NFA was losing some P7-8.
But that was then, when the average cost of producing a kilo of palay was P10 to P11; now it is around P16, with fertilizers and other inputs more costly, and transport costs are very high.
As a result of the 2008 rice price crisis, when NFA was importing from Vietnam at up to a thousand dollars per metric ton (a world record-setter), and then an average 700 dollars in 2009, even the P25 per kilo rice was unsustainable, and with very high imported inventories during those two years, NFA’s sovereign-guaranteed debt rose to P178 billion.
NFA’s “legacy” debt prompted DBM under Butch Abad to give a zero budget for the agency from the national expenditure program, compromised later to P2.5 billion for domestic palay buying. In today’s GAA, it is P9 billion.
To cut NFA losses and reduce our debt, we reduced government imports to 200,000 metric tons, more than a tenth of the previous year’s 2.25 million tons.
Then, to wean away NFA from imports, we bid out import licenses to the private sector to some 600,000 tons, also in preparation for the expiration of the WTO allowed quantitative restrictions on rice to protect local farmers.
We increased retail price to P27, and timed the announcement on December 8, 2010 after most people had already received their 14th month bonus, and Christmas was in the air after measuring through a survey potential consumer reaction.
Increased income from pricing and from bidding the private sector import licenses (as against zero in previous dispensations) plus short-term loan restructuring trimmed the P178 billion debt to some P143 billion in one year.
But Typhoon Pepeng which hit Central Luzon right during NFA’s anniversary (September 26), destroyed almost 1 million metric tons of palay in one single night of fierce winds and strong rains, flooding our farms just when harvest was about to start.
If a super typhoon or two hits us between now and early November, we will have a shortage, given present market supply conditions. If we are lucky, the problem could recur if a strong El Nino hits us early next year.
The Philippine Statistics Authority estimates the per person average intake of rice to be 118 kilos.
Computing national consumption at 118 kilos per person multiplied by 117 million Filipinos equals close to 14 million metric tons of rice.
Government is now mandated to have only 9 days (instead of 30) buffer stock, a decision made along when the RTL took effect.
When NFA informed the president in mid-April this year that their inventory was down to 2 days, after supplying Kadiwa at a loss of P13 per kilo and calamity responses, and asked that 300,000 metric tons be imported to augment the stock, the president decided not to allow government importation at that time.
Imported rice, as a rule of thumb, must be in the country before the typhoon season (the lean months) arrives. By not acting in mid-April, government has just one day inventory as we write.
Meanwhile, the Russian interdiction of wheat from Ukraine roiled the entire grains market, causing India, the world’s biggest exporter, to ban exports of non-basmati rice. India did the same in 2008, a ban that was lifted only in late 2011.
Private importers even with permits already given, not by NFA, but by the Bureau of Plant Industry, stopped importing because world prices have become too high.
It has become too late to import, with Vietnamese rice at US$620-640 FOB per ton (20 sacks). Add freight, shipping and insurance costs of a conservative $ 25 per ton, that equals $645 to $665.
Total would thus be P36,440 to P37,570 per metric ton.
To that, BoC collects an import duty of 35 percent, which now brings up the cost to around 50,000 pesos or 2,500 pesos per sack, or 50 pesos per kilo without computing storage, transport, and profits to both importers and retailers.
With palay bought at 23-25, sometimes higher, and imported rice at the previous paragraph’s figures, the market price is now 55-60, even higher with better quality rice.
If our high officials imported in April-May, or gave import permits to the private sector then on condition that the rice arrived before the lean months, we would not be in this severe a crisis.
The only immediate solution, as Diokno and Balisacan themselves propose in lieu of price control, is to do away with the 35 percent tariff meanwhile.
But even that is too late, because tariffs can be lowered by the president only when Congress is not in session. That will have to wait until the recess by October.
As a band-aid solution, Malacanang authorized another “ayuda” to retailers.
USec Sebastian assures us harvest is just around the corner, and prices will then abate because of domestic supply.
There are two big IFs to fulfill this wish: one, that the harvest is good; and two, that there are no strong typhoons that will hit the rice-producing areas the rest of this month and well into the middle of November.
USec Sebastian knows the myriad solutions to our periodic rice crisis, but the effects of his programs will be gradually felt in the long-term, and requires utmost cooperation by the DA and the local government units, which can be rather spotty.
The prime minister of Vietnam proposed a five-year rice supply agreement to President Marcos, but the details we have yet to know. Since Vietnam is cutting its export volume from 7 million tons to a mere 4 million by 2030, meanwhile shifting to better high value crops, its ASEAN neighbors, Indonesia and the Philippines will be dividing up that lower volume.
Can our rice production catch up to ensure enough domestic staple supply? That is the 64 dollar question.
Can Secretary Arsenio Balisacan, who is being pushed to the difficult job, do better than the president himself?
Can idealistic, qualified people like Cielo Magno ever fit into the topsy-turvy workings of this administration?
Meanwhile, our agriculture secretary cum president hies off to Singapore to talk with business leaders (about rice imports?) and of course, his annual hegira to the F-1 races.