Rice: The next price rise crisis

An edible commodities expert was interviewed on Bloomberg TV last Tuesday evening and he predicted a dramatic increase in rice prices by next year. He cited adverse weather conditions that caused sharp declines in the rice production of India and the Philippines. In fact, the expert pointed out, the Philippines is calling for two early tenders of rice to the tune of 1.2 million tons.

The tender for 600,000 metric tons of rice on Dec. 8 happens a week after a record 600,000 ton tender on Dec. 1. The two tenders will push the country’s purchases for 2010 to 1.45 million tons before the end of this year. According to Bloomberg, the US Department of Agriculture estimated on Nov. 10 that we will import a record 2.6 million tons next year, out of an estimated total world trade of 29.5 million tons.

The Philippines is the world’s largest importer of rice. An international expert has accused us for partly provoking the sudden meteoric rice in the world price of rice in 2008. Our government was accused of destabilizing a trading system that had exhibited such resilience over the last two decades.

It will be recalled that world rice prices trebled within less than four months and reached a 30-year inflation-adjusted high in the second quarter of 2008. The crisis, according to the expert, was man-made, not the result of natural developments. Indeed, the expert observed, “the rice crisis occurred during a period of record world production and not especially tight stock levels.”

Politics, not supply and demand, fueled that rice crisis, the expert concluded. He recalled that only two weeks before the crisis went into high gear, the Philippines paid as much as $1,220 CNF for 25 percent – an increase of over $500 in just over a month.

Agriculture Secretary Art Yap defended himself saying he did what he had to do as Thailand, Vietnam and India restricted exports and we needed a buffer stock to stabilize our market. Rice is thinly traded in the world market and a massive demand from us can destabilize the market.

This time around, natural calamities and changes in weather patterns are to blame. Rice futures have surged 35 percent from this year’s low of $11.195 per 100 pounds on the Chicago Board of Trade, Bloomberg reported last Monday. “The price surged to a record $25.07 in April 2008 as concern about supply shortages prompted India and Vietnam to cut exports. The contract last traded at $15.105.”

Bloomberg quotes a Thai rice trader predicting rice export prices may double to more than $1,000 a ton. Thailand is the largest exporting nation. The benchmark export price for Thai 100 percent grade-B white rice, updated weekly by the Thai Rice Exporters Association, was set at $542 a ton on Nov. 11, according to Bloomberg.

We have to credit Secretary Yap for trying to secure our supplies with those early tenders. The price can only go up as India is also expected to buy from the world market to cover shortfalls in their domestic production due to changes in weather patterns. India used to be a modest exporter.

Whoever wins in the May election should launch a better program to vastly improve our country’s ability to feed ourselves. They have to make rice farming profitable for our farmers and not always sacrifice them to appease urban consumers. It is about time that we stop enriching the rice farmers and traders in Thailand and Vietnam while our farmers languish in poverty.

Better managed programs on improving farm infrastructure are definitely called for. This current administration have said a lot about these programs but in the end, seem to have little to show… and it is not just because the typhoons came around.

This early, our people will have to realize that commodities like rice, sugar and oil have world market prices. The best that government officials like Art Yap can do is be adept in getting the best possible price for rice, which the early tenders are supposed to accomplish.

For sugar, we ought to allow our sugar farmers to take advantage of current world market prices. For oil, we have just learned the lesson that there is absolutely no choice but to import what we need at prevailing world prices. That’s what being part of the global market is all about.

Sugar farmer

I got this reaction to a previous column from a sugar farmer.

Hello… That was a great column, particularly the section on sugar, in the Nov. 13 STAR issue. My compliments.

Having been a sugar planter since the 80’s I’ve seen the industry suffer a lot of oppression, price control being just one example.

Aside from what you wrote, last crop year our unsubsidized fertilizers almost doubled in price. Regardless, the greatest setback to agriculture is still the resounding failure called land reform. While it’s not necessarily bad that 89 percent of farmers till less than 10 hectares, it’s a death sentence for food production when farmers are not given the resources to produce competitively. Most of CARP money goes to acquiring even more land and fueling the DAR behemoth.

Larger farms may have a fighting chance, but the spectre of acquisition and pressure from militant groups scares away any new capital. I guess I’m one of the dumber ones who have chosen to stick it out, although I must beg for anonymity as farming is tough enough without having to face picket lines from agitators on one’s property.

Regards.

From an OFW

I got this reaction from Dr. Rogelio V. Paglomutan, a lecturer in Economics & Finance at the RMIT International University Vietnam. He describes himself as an OFW.

I share your opinion on the mistake government made in the selling out of its 40 percent share in Petron. As a dominant firm in the oligopolistic industry, it could be a price leader - a strong leverage for the government against price abuses by other players. Our policymakers and their technical staff seem to have forgotten their microeconomics.

As you pointed out rightly many times, the credibility problem of the administration (a rational expectation issue in macroeconomics) is hampering the collection of taxes since many taxpayers are not paying correct taxes and even evading tax payments (i.e., massive underpayments) under this corrupt/scandal-ridden administration. Not even, the best talents/heads could hit revenue targets assigned to BIR and BOC given this govt credibility issue.

Moreover, we have wrong fiscal structure (two separate departments under the fiscal sector - only in the Philippines). The revenue and deficit targets set by DBCC (cabinet committee) are always unrealistic, given the pressure from DBM to accommodate more funding requests. If only we have one department head who will call the shots on the both the revenues and expenditures, then we would not have this huge fiscal/debt problem - accumulation of large yearly deficits and ballooning debts (domestic and foreign).

Thanks to OFW remittances, the country will unlikely be in default from its foreign obligations; but we expect higher taxes in the short to medium terms and even to long term. The election of the new president  that is well-supported by middle and upper classes will allow for a much better collection of taxes given a renewed/regained credibility of the new administration, and prevent a fiscal crisis to happen (but not with Erap election).

Hope Mar will be assigned to DOF (and also heads NEDA) to manage our economy and best implement their party economic platforms - just in case the yellow team makes it.

Best wishes and congrats to your usual good policy analysis.

Birth control

 Atty. Sonny Pulgar, who as a lawyer speaks with authority or has a great sense of humor, sent this one.

A woman went to her doctor for advice.

She told him that her husband had developed a penchant for anal sex, and she was not sure that it was such a good idea.

“Do you enjoy it?” The doctor asked.

“Actually, yes, I do,” the woman said.

“Does it hurt you?” he asked.

“No... I rather like it.”

“Well, then,” the doctor continued, “there’s no reason that you shouldn’t practice anal sex, if that’s what you like, so long as you take care not to get pregnant.”

The woman was mystified. “What? You can get pregnant from anal sex?”

“Of course,” the doctor replied. “Where do you think politicians and lawyers come from?”

Boo Chanco’s e-mail address is [email protected]. This and some past columns can also be viewed at www.boochanco.com