Rice

With our negligible market share, we may not be able to influence the movement of crude oil prices in the global commodity exchange. But with our appetite for rice, we can influence grains prices significantly — upwards.

In the first few days of December, the Philippines has placed two large orders for imported rice. The orders add up to nearly a million metric tons of the vital commodity.

We will see, about two weeks from now, how those orders will influence global rice prices. The last time the country put in a large order for rice, global prices for the commodity spiked sharply.

It is not just the volume of rice we wanted to import that caused that spike. The spike was aggravated by the fact that the orders were placed by only one buyer. Under our laws, only the National Food Authority (NFA) is allowed to import rice.

The single rice buyer scheme requires that suppliers aggregate rice stocks to bid for the NFA’s orders. That invariably causes supply instabilities in the supplier country. When rice prices spiked sharply last year in the wake of a large Philippine tender, rice stocks were low and reserves of the commodity were slim.

Because of the great political significance of rice supply in the country, suppliers abroad are aware that our government will pay about any price for the commodity when threatened with shortages.

Still, if the rice importation market were kept open rather than limited to one purchaser, the impact on global prices will probably be mitigated. That is because there will be many small buyers rather than one big one. They will place many small orders instead of large single-order placements. The smaller orders will be spaced over a longer period, minimizing impact on supplies and prices.

But we are heir to the odd arrangement we have in place: a government rice importation monopoly justified on the basis of ensuring supply security for a politically explosive commodity.

The first rice order is probably understandable. We lost a large amount of palay because of the flooding that hit us last month. Our stockpile is in urgent need of replenishment.

The second order, happening only a week after the first, is a matter of debate. It has been the subject of all sorts of malicious speculation.

Food authorities say the orders were being placed in quick succession to take advantage of ample rice stocks during this time of the year. We are not too sure about that. Both China and India suffered droughts this year as much as we suffered floods. The two most populous economies in the world will also be in the market for rice.

Nevertheless, I suppose, the rice authorities cannot be faulted for exercising prudence. The worst that could happen is to suffer a rice shortage by the time elections come around. Rice shortages are highly emotional events in this country, opening the doors to unseemly political outcomes.

Should global prices for rice spike as a consequence of the Philippines’ pattern of buying, that spike will only marginally reflect in domestic prices. Historically, we subsidize the gap between import cost and retail prices.

Government absorbs all the losses incurred from its monopoly over rice trade — because imported rice will never again be cheaper than domestic rice. In the past, government was able to offset losses from subsidies to domestic rice with profits from importing cheaper rice.

The NFA is already the biggest loser among government corporations. Each year, the agency loses billions, adding to the deficits that force us into larger indebtedness.

The fundamental question, of course, is: What happened to our rice industry? Why have we descended from being a rice exporter into becoming the world’s biggest rice importer?

There is no easy answer to that. We can just go through a list of factors undermining our ability to produce enough rice to avert importation.

At the top of that list is, to be sure, topography. We have scarce land and small rivers. The cost of rice production is higher than most other places on earth because we pump water from aquifers to flood our paddies.

Second is climate. On the typhoon belt, we are heir to seeing our crops wiped out by bad weather.

Third is our failure to capitalize our agriculture. To the contrary, we have cut up our rice lands in the name of some ancient view of social justice, thereby undermining our ability to capitalize production. While other countries have mechanized their rice production, we continue to plant and harvest by hand — trapping a large number of people in a section of our agriculture that does not produce enough value. That is the root of rural poverty.

Fourth, our population has simply outstripped the carrying capacity of our archipelago. With so little arable land between mountains and shore in our little islands, there is simply no place to plant rice. Other demands for land, principally for housing, further reduce the land we have for rice.

It is not easy to solve our rice problem. No matter how much we experiment with hybrids, subsidize fertilizers and regulate pricing for the commodity, there will never be enough. We will become a larger and larger net importer of rice.

We can. Of course, choose to consume less rice. That is unlikely. Deeply ingrained dietary habits are harder to change. It is easier to continue tweaking a problem where no solution seems imminent.