Rice

The biggest item pushing our inflation rate is not fuel, as one might expect. It is rice.

According to the decomposed numbers for last May’s inflation, rice contributed 1.1 points to the aggregate inflation numbers. Rice prices last month rose 15.6 percent from the same month last year.

By comparison, gasoline prices rose rose a staggering 51.6 percent. This contributed 0.8 points to the aggregate inflation number.

LPG rose 41.0 percent over the year. This accounts for 0.6 points to the aggregate inflation rate.

Taken together, however, total energy costs provided the most points in pushing the inflation rate higher. Electricity went up 8.8 percent, diesel 58.5 percent and road transport fare 5.0 percent.

The higher energy costs are a direct consequence of the troubles in the Middle East. They will continue to provide the cost-push to keep our inflation rate elevated. In a way, the inflationary spike in all other goods are influenced by higher energy costs.

The food in our favorite outlets got there after incurring higher transport costs. Preparing the food incurs added energy costs.

The war mounted by the US and Israel against Iran is not about to end soon. This week, for the 38th time, Donald Trump announced that a deal with Iran is on hand. Tehran denied that.

Trump lied about the imminence of a deal 37 times before the latest announcement. He seems to be making this up to influence his own domestic market. Much of his optimism is based on self-delusion.

Inflation, as we know, hits the poor harder than the rich. This is because much more of the lower income household spending goes to food – and then to transport. The fact that our food inflation is running almost unbridled harms poorer Filipinos most.

Over the past three months since the Americans and Israelis attacked Iran, our government has frantically tried to protect our energy supplies. That is what we expect our government to do. If our oil supplies run low and rationing becomes necessary, every other sector of our economy will be harmed.

But government should also be concerned about reining in food prices. Not much has been said about this except for one stray announcement setting a price ceiling of P50 per kilo of imported rice.

Imposing a price ceiling on imported rice will likely inhibit rice importation. But our economy cannot survive without rice importation. We produce less rice than we consume. This problem has not been addressed through a comprehensive program to improve our rice productivity.

Instead of moving decisively to improve our rice productivity, we built a dependence on imported grains. This is risky policy in the long run. The global grains buffer stock is thin. Climate events could wipe out what is available for export by the few countries enjoying grains surplus.

We import our rice from the mainland Asian producers, principally Vietnam and Thailand. They may not always have enough rice to sell us despite the agreements meant to otherwise secure our access to the staple grain.

Rice prices, too, are subject to the vagaries of weather and domestic supply. Our sources of rice imports will sell only what their domestic markets cannot consume. Exportation is the first to go should their supplies begin to become critical. It is not only in the Philippines that rice is an explosive political commodity.

We are not the only country importing large quantities of rice. Despite her powerful agricultural sector, China is a net importer of rice as well. We should not relish the prospect of getting into a bidding war with China should the buffer stocks run thin.

Unfortunately, rice cultivation relies on urea for fertilizers. This is a petroleum by-product. The same troubles in the Middle East that squeezed petroleum supplies and forced up the commodity’s prices also limited urea exports and made the fertilizer more expensive.

Since urea supplies have become limited and the commodity’s prices higher, we might expect that our rice yields decline in the next harvests. That is a red flag. We might have to import more – and with a weaker currency at that.

If we discourage rice importation by setting a price ceiling on retail prices of imported grains, we could face a supply crisis soon. This is something no one relished thinking about.

Over the years, we have accomplished little in improving our rice productivity. Our rice production costs are always higher than others. This is why importing rice has become a profitable activity for traders.

There are structural reasons why our costs for producing rice remain higher. We have not integrated our rice production. Much of our rice is still produced in small landholdings that are resistant to innovation and mechanization. Decades of breaking up landholdings into small “family-sized” plots are taking their toll. We are trapped in subsistence agriculture.

While our neighboring economies are mechanizing in a hurry, including increased use of artificial intelligence, our agriculture remains stagnant. There is such a strong orthodoxy here about keeping farms small rather than encouraging capitalization and integration. As a result, our productivity remains stagnant. We pay a huge price for this.

It is time to “industrialize” our agriculture. But this requires a certain amount of political will among those who govern us.

Our government, for a trillion reasons, labors with very low approval ratings. It has no political capital to embark on an agricultural revolution.