Can P-noy cure dysfunctional rice importation system?

Rice importations have hogged newspaper headlines once again. Allegations of shady deals in the record-setting rice importations of the past administration persist. The question in the public’s mind is, can P-Noy clean up this perceived new breeding ground for corruption?

Presented below is a reader’s take on rice importations. These are recent letters sent by Manuel Bondad, who in the past had shared his views through this column about some of the more pressing issues regarding the subject. Following are excerpts of the first of his two letters.

“We are excited how the rice issue will evolve under a new council, reportedly manned by Secretaries of Agriculture and Finance, the NFA Administrator, the Central Bank Governor, the Land Bank President, the DBP Governor, and a representative from the farmers’ group.

“[There are however] some concerns about PH’s 2011 rice importation. Quite surprising are media reports that about half of last year’s record-breaking import volume of 2.45 million metric tons (MMT) shall be procured through an extended Memorandum of Agreement (MOA), concluded in 2008 between the Governments of the Philippines and Vietnam, but reportedly only revived recently for another three years at 1.5 MMT per annum.

“Repeated calls in July 2009 for a disclosure of the MOA remain unheeded. Nevertheless, the timing of the proposed importation coincides with the main harvest season of ASEAN major producing nations which may augur well for our country, this time.

Transparency needed

“Perhaps, this government should promptly make public both MOAs for the sake of transparency, [including] the terms and process of price evaluation that was adhered to. Significantly, under the 2008 MOA with Vietnam, government-to-government price negotiated were the 2008-2009 importation, and surprisingly the year 2010 phase unexpectedly modified in December 2009 from G-to-G scheme to public tender involving several counties.

“Obviously, the surprise maneuver enabled Vietnam’s state trading firm, Vinafood2, to raise tremendously its price bid to the level of Thailand – internationally known to enjoy a significant premium price for its variety. Under a G-to-G scheme, Vinafood2 alone may have settled for much lower prices consistent with lower Hanoi quotes, and benefited PH significantly!

“A perusal of published rice statistics from FAO-Rome and the Board of Trade of Thailand, would indicate that our average 2010 acquisition cost of $650/MT (C&F), even reaching $700/MT at some point from December 8-15, 2009 is on the high side when compared to price levels at the time of bidding, and even twice in U.S. dollar (FOB) quotes at the time of deliveries: $490/MT in December 2009, $400 (1st quarter 2010), $330 (2nd quarter), $360 (3rd quarter), and $361(4th quarter 2010).

“The statistics clearly reflect a dull market, and yet 2.45 MMT were rushed in only two weeks, but for delivery monthly from December 2009 to September 2010. Will this government adopt a similar process of combined rice tender used by its predecessor when a MOA in effect implies direct government-to-government price negotiation without private traders’ participation?

“Moreover, misleading are persistent reports that the original MOA was sealed at the height of a rice crisis in 2008! Reportedly concluded in mid-June 2008 when international prices softened from $1,080/MT for a brief moment in April 2008 to $750/MT, and plummeted to the $350 level in the last quarter of 2008.

Propensity to import at higher price level

“Against these levels, our negotiators settled for $950/MT (C&F) and $550/MT (C&F) in June 2008 and December 2008 respectively for an enormous 2.4 MMT of the lowest rice grade. Significantly, despite PH being consistently the world’s biggest rice importer, with the second largest [importing country] trailing with less than a million metric tons, published records reflect our propensity to agree to the highest rice price level among all importing countries in the world, even besting faraway countries and neighboring ASEAN importers.

“It would seem that we are perennial losers regardless of our procurement scheme, i.e., G to G, or public tender! How will the government address this drawback or weakness? Will 2011 usher in reasonably priced imports and an end to massive procurement? This we hope!”

What’s the truth on NFA debt expansion

More questions are being raised from the following excerpts of Bondad’s second letter.

“President Aquino’s government has attributed the expansion of NFA’s debts (from P20 billion in 2000) to P177 billion to excessive importation by the previous government. Promptly, Rep Arthur Yap denied the allegation, and reasoned that a rice committee, manned by the Secretaries of finance, trade, science, and agriculture, Pagasa, and the Bureau of Agriculture Statistics (BAS), was tasked to recommend annual import needs. For 2010, the body set 3.2 MMT, but only 2.2 MMT was procured by the previous NFA, the former DA Secretary added.

“Presumably, as the country’s 2010 record breaking import volume of 2.45 MMT including the private sector’s allocation of 245,000 MT was transacted the first two weeks of December 2009, the GMA rice committee obviously must have released its recommendation in November 2009 or earlier.

“Unfortunately, no details so far were disclosed by both parties to validate their respective positions and as a result the public may be clueless! Although there appears to be no shortage or apparent need to rush imports as normally at about this time of the year our needs would have been sealed, and vessels headed for PH shores. Who is more truthful?

What factors caused excessive import volume?

“Is the 3.2 MMT recommended import volume excessive when related to published rice per capita consumption by independent surveys of the NSO, the BAS and the DOST? Based on the country’s beginning rice inventory level in January 2010, the estimated 2010 palay output of 17.4 MMT, and the suggested imports of 3.2 MMT would have tremendously raised our available milled rice supply to an unprecedented but wasteful 17.2 MMT or 185 kg/person/year, or 170 kg/person/year net of wastage. The peak supply reached only 15.6 MMT in 2008, an average of 15 MMT during the past three years. What other factors were inputted for the previous rice committee to have arrived at a huge importation?

“Against the BAS 2009 annual rice per capita index of 119 kg, the DOST’s 112 kg and the NSO’s estimated 106 kg, the 3.2 MMT importation if carried out would have bloated our rice supply by some 5 MMT! Was the 2.450 MMT importation excessive as alleged?

“If we adjust our estimates to the substantial drop in palay production to 16 MMT in 2010, the figures point to the same conclusion: excessive inventories equivalent to 120 days, not in accordance with the mandated 30-45 days buffer stock. [This explains] the disturbing strain on NFA finances, and the need for an embarrassingly eight months suppliers’ credit, too long for a consumer item [that is] paid cash at wholesale or retail levels.

More of the same?

“What will set apart the Aquino rice committee from its predecessor? What legacy will rice farmers inherit from the body?”

Should you wish to share any insights, write me at Link Edge, 25th Floor, 139 Corporate Center, Valero Street, Salcedo Village, 1227 Makati City. Or e-mail me at [email protected]. For a compilation of previous articles, visit www.BizlinksPhilippines.net.