No more NFA subsidies?

For successive days now, international business websites have been warning of an impending crisis on food prices. Increasing demand in reviving economies, prevalence of nasty weather as well as speculators in the commodities market are being cited as reasons to expect higher food prices this year.

Other than serious repercussions for emerging market growth, rising food prices are also expected to cause enough political fallout that could worry investors who are up to now, bullish on emerging economies. An analyst for UBS warned “Chinese and Indian markets have already shown what rising inflation can do to investment sentiment.”

No wonder governments are thinking of measures to mitigate the impact of rising food prices on their populations.

In South Korea, the Financial Times reports that there had been grumblings about how Seoul was being forced to pay unduly high prices for grains because the market was dominated by big commodity traders. “We need to ensure price stability in the face of speculation,” FT quotes a Seoul official saying.

The Korean government’s response, according to the FT, is to purchase directly from American farmers by setting up a state-led grain trading company in Chicago to buy up to 30 percent of its grain needs by 2020. The FT reports that the Korean plan is similar to a scheme from Abu Dhabi, which has set up a government backed commodities company to secure metals and food.

As we reported in last Wednesday’s column, food prices have surged during the last two months to a nominal all-time high, surpassing peaks during the 2007-08 food crisis. The world price for rice, our principal food import, has remained fairly stable but NFA says it needs to arrange to import soon in the light of a tightening market.

But does this mean NFA will continue to go its merry way eating up a large chunk of government money in subsidies?

Not necessarily, P-Noy’s officials reassure. For starters, NFA’s Lito Banayo says they plan to import a lot less rice this year. For another, Finance Secretary Cesar Purisima revealed a new approach on how NFA approaches its mandate.

In an interview with Global Source, a New York-based think-tank, Mr. Purisima conceded that the NFA is very political. The rice issue is very sensitive. But he said they are close to agreement on a plan. “It may not be a perfect plan, but the reality is if we end up with rice shortages, we will be in deeper trouble. So we will continue to import rice but we will limit the NFA to price stabilization and buffer stock maintenance to wean them away from the subsidy component as we increase the conditional cash transfer program.”

Other than NFA’s import plans, what else can we do? We can eat camote!

According to Agriculture Secretary Proceso Alcala, Filipinos should in fact, diversify their diet to include more vegetables and tubers like camote to ease pressure on rice. Alcala has also announced plans of the Department of Agriculture to embark on an urban gardening program next month to encourage urban poor Filipinos to grow plants and vegetables in their backyards using recycled materials.

Alcala said he wants to see more Filipinos planting camote (sweet potato) and corn, which can be used as rice extenders. Alcala said soft drink bottles can be used to plant kangkong and tomatoes. “Just place it beside your house and you have a vegetable garden,” Alcala said. “We are teaching the poor to do this not because they are poor, but because these plants are nutritious,” he said.

The Philippines is currently the world’s top rice importer, buying about 10 percent of our needs from abroad. According to the DA, palay production for 2010 is forecast at 16.02 million MT, 1.5 percent below the 16.27 million MT output in 2009. The decrease is mainly brought about by the adverse effects of the El Niño phenomenon that resulted in the contraction of harvest area from 4.53 million hectares in 2009 to 4.37 million hectares this year, or by 3.7 percent.

Late last year, Science Secretary Mario G. Montejo declared that we don’t have to import rice if we shift our preference from white to brown rice. This is because, Montejo said, “in milling the palay to brown rice, you get 10 percent additional yield as compared to white rice, which is equivalent to the country’s rice production deficit.”

A sharp surge in food prices is clearly a top political worry for the new Aquino administration. But early this week, DTI announced it is allowing the baking industry to raise the retail prices of Pinoy Tasty, a kind of sliced loaf break, as well as pandesal, a breakfast staple, in the light of a continuing rise in the prices of flour and sugar.

With world market prices for corn rising as well with the increased use of ethanol as fuel and poor harvests, the prices of meat products are also expected to rise. Corn is a principal ingredient in animal feeds. As it is, global meat prices have hit a 20-year high last year, the Financial Times reports, rising in August last year to its highest level since 1990.

Other than imposing price control, the government should start thinking of other ways of mitigating the rise in local food prices. With the evening television newscasts constantly going the rounds of markets and focusing on prevailing food prices and on leftist loudmouths, government must be seen equal to the twin challenge of preventing shortages and assuring reasonable prices. The recent report of SWS that the hunger rate has risen in the first months of the new administration exerts a heavier pressure for P-Noy to be seen doing something.

No new taxes

On new taxes, we can all read Secretary Purisima’s lips: Yes, he told Global Source, no new taxes… for the first 18 months of the Aquino administration. But he still hopes to convince Congress to eventually pass new tax measures.

The sin taxes are the easiest ones, the Finance Chief declared. “In fact, there is a bill now in the Congress. That did not emanate from us, but we’re not objecting to it either. Down the road, I would like us to go to Congress, but after we have done our homework then we will have the moral ascendancy to ask for increases such as an increase in the transactions tax, namely the VAT, and a corresponding reduction in income taxes.”

Mr. Purisima told Global Source that they will use administrative measures to increase tax collections. “We are approaching this from various points – from the banking point, from the contracting standpoint where we are working with various government agencies in determining financial capacity to contract. For the government, the income tax return is the basis for contracting. For example, if you are a contractor and you are bidding for a P1 billion project and the income tax return you show has a P50 million revenue, how can you bid for a P1 billion project?”

Purisima is not even worried that the Bank Secrecy Law will slow down the tax collection agencies. “We don’t really care about bank secrecy because even though the bank account is secret, the money is useless if you are unable to use it. The usage is not secret. So the moment they use these funds, we can access readily available information from the Registry of Deeds, the SEC, the Land Transportation Office, etc.

“The moment we consolidate these information, the risk of them getting caught will be high. Those people who will get scared enough to comply. And it’s easy to target the few rich people. I am working closely with the BIR and BOC commissioners and pretty soon I will have an Insurance Commissioner. The key to driving performance, just like in the private sector, is the use of information.”

The one thing I see going for Purisima and the rest of the economic team is that they are driven to deliver. Soon enough even the tax collectors should get enough credibility to win over citizen support. They simply have to succeed or else there is little that P-Noy can do without the finances needed to do anything.

Deficit and taxes

Here’s something I picked up on the Internet.

The government deficit is the difference between the amount of money the government spends and the amount it has the nerve to collect.

Boo Chanco’s e-mail address is [email protected]