Securing the rice supply

The price of the rice variety that I usually buy has stabilized, with a large discount for consumers who buy by the sack.

After last year’s crisis, rice prices have been going down since January, thanks to sluggish demand and large secondary crops that arrived starting in April. The Food and Agriculture Organization expects a comfortable global supply and a continuing drop in rice prices until yearend.

The Philippines, according to the Department of Agriculture (DA), now has a comfortable rice inventory of 35 days, above the required 30 days, which has stabilized retail prices.

The government must want to make the country even more comfortable about its rice supply. On July 22, the National Food Authority (NFA) is holding a bidding for the supply of 75,000 tons of milled rice, allotting over P1.9 billion for the purchase.

Among the countries expected by the NFA to participate in the tender, according to reports, are leading rice exporters Thailand, Vietnam, China, India, Australia, the United States and Pakistan. But Australia and the US typically do not do government-to-government rice deals.

The NFA announcement has raised eyebrows in the industry. Aside from the country’s comfortable rice inventory and falling global prices, governments usually refrain from importing rice later in the year because it’s harvest time, stocks are up and prices are down.

A supply glut is likely to pull down prices further, which should be good news for us consumers. The question is whether I would end up paying more than necessary for my staple, in a roundabout way, through my tax money that the NFA pays for its purchases.

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Agriculture officials are busy denying that the government bought 1.5 million tons of rice from Vietnam at a price that was over 40 percent higher than what the country should have paid.

The shipments arrived during the first half of the year. The deal was closed in December 2008 at prices ranging from $535 to $645 per metric ton.

DA officials pointed out that the prices were still lower compared to Thailand’s bids ranging from $552 to $672 per ton.

This could be because Thailand has a strong rice support program and its price gap against Vietnamese rice of comparable varieties has widened from a spread of $30 to $40 to the current $150-$160 per ton.

A more accurate benchmark would be prices at the source. The Food and Agriculture Organization’s latest rice price monitor last week listed Vietnamese price in December 2008 for the varieties bought by the Philippines at around $323 per ton.

Taking into consideration the fact, as pointed out by the DA, that the government negotiated a large contract with the Vietnamese government for an extended shipment, which means paying a premium for the rice, the final purchase price could reasonably go up to about $380 per ton.

Is a procurement price of $535 reasonable? Agriculture officials insist it is. The Senate, which is considering an investigation, may have to be the judge.

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At around this time last year, Filipinos were reeling from skyrocketing rice prices and there were long, snaking lines at NFA outlets for subsidized rice.

Industry observers have noted that the crisis was more a problem of global distribution rather than an actual drop in rice production. India, facing parliamentary elections and wanting to ensure sufficient supply of its staple, restricted its rice exports starting in 2007 and imposed a total ban in 2008.

At around the same time, Vietnam also restricted its exports. Other exporters held on to their stocks.

Rice prices in the world market, which started at $375 per ton in January, started shooting up.

The Philippines, said to be the world’s largest rice exporter, went into panic buying mode. By April, Philippine tenders had driven up world market prices to a dizzying $1,200 a ton.

That was when the World Bank stepped in, urging the Philippine government to find a better way of procuring rice, perhaps through private negotiations.

On June 10, Vietnam lifted its import ban and shipped 600,000 tons of rice to the Philippines. Japan also started releasing its rice reserves, built up over several years and which most Japanese did not want to eat, into the world market. The rice lines in the Philippines disappeared and retail prices started stabilizing.

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The Philippines imports rice from several countries, but Vietnam has been a favorite since the Marcos regime.

During the dictatorship, the industry buzz was that the two countries liked doing business with each other because it was always mutually profitable for the public officials involved.

Philippine rice importations typically increase during election years, according to industry observers, as campaign war chests are fortified.

In recent years the Vietnamese, according to the industry grapevine, have tried to keep kickbacks from rice exports below $100 per ton. This supposedly became difficult as world market prices shot up last year.

In the Philippines, the buzz is that the typical commission soared from $8 per ton to a staggering $95 per ton at the height of the crisis last year.

Agriculture officials have described such stories as ridiculous, insisting that importing rice offered no opportunities for kickbacks.

Their problem is that this administration suffers from a serious credibility problem. This is especially true when it comes to the utilization of public funds by a department that has been embroiled in election-related corruption scandals involving funds meant for agriculture, notably the fertilizer fund scam in 2004.

Some senators have raised the possibility of looking deeper into the latest rice importations. One senator has mentioned specific multibillion-peso amounts in supposed kickbacks from rice imports. Maybe he has the figures to prove his story.

Another rice tender is coming up soon. The deal could show who’s telling the truth.