Filipinos most vulnerable to high food prices

THE Philippines may be the most susceptible to adverse affects of higher food prices worldwide among all Asian countries as the bulk of the country’s inflation accounts for food.

Credit Suisse’s international financial services group on Tuesday said that its global commodity team is expecting grain prices to rise from 13 percent to 14 percent from the previous quarter’s levels, which would translate into about 8 percent to 9 percent in Non-Japan Asia’s (NJA) food prices in local currency terms.

In its research note, Credit Suisse said that since food in the Philippines accounts for 46.6 percent of its consumer price index (CPI), the country would be most affected by the projected increase in the prices of food this year.

“This would suggest that the Philippines is the Asian country that is most exposed to higher global food prices,” it said.
Of the 46.6 percent of the country’s inflation, 13.3 percent account for rice, bread and cereal-related products.
Rice alone accounts for 9 percent.

Next to the Philippines, other Asian countries that might suffer higher inflation rates because of rising food prices are Vietnam (39.9 percent of CPI), China (34 percent), Thailand (33 percent), Hong Kong (32 percent), Malaysia (30.6 percent), Indonesia (29.9 percent), India (26.9 percent), South Korea (26.4 percent), Taiwan (26.1 percent) and Singapore (22.1).

Credit Suisse, however, said that there are several factors that might either push or offset the increase in food prices in NJA since some countries import most of their food, while others rely more on domestic consumption and many have domestic food markets that are heavily segregated from international markets by high trade barriers.

“The increase in global food prices may not be fully passed on to consumers, but absorbed by the producers or the government. This is not only because of barriers, but also because of domestic price controls and subsidies,” the Credit Suisse global commodity team said.

In the case of the Philippines, the government subsidizes its importation of rice in the form of a tax expenditure fund (TEF) through the National Food Authority (NFA).

As of end-November last year, the government subsidized the tariff of its rice by P7.685 billion.

Among Southeast Asian countries, rice falls under sensitive areas, thus warranting a very high tariff rate of 50 percent.
For this year, Manila has allocated P15 billion for TEF, the bulk of which would still go to the NFA’s rice importation.
At the end of December, the country’s inflation rate stood at 3.8 percent.

FAO warning
A global alarm bell was sounded last week when the United Nations’ Food and Agriculture Organization (FAO) warned that millions of people were at risk after its world food price index broke through the peak 2008 levels to hit a record high.

The warning was swiftly echoed by World Bank President Robert Zoellick, who said that rising prices were “reemerging as a threat to global growth and social stability.”

In Asia, the inflationary upswing is causing serious jitters in the region’s three most populous countries, China, India and Indonesia—seen as especially vulnerable to a further surge in the price of staples such as rice and wheat.

The food price surge is fueling overall inflation and presenting India and China—whose fast-growing economies are both key engines of the global economic recovery—with tough choices when it comes to monetary tightening.

India’s central bank pushed up interest rates six times in 2010, while China hiked its rates twice in the last three months of the year.

Economists said that interest rates are a crude instrument to tackle rising food prices, which are influenced by a complex array of supply and demand factors.

The current price pressure is the combined result of bad weather affecting production in some countries, increasing Asian demand, export restrictions and speculation.

The 2008 crisis was partly blamed on low ratios that fueled a vicious price spiral as fears of food shortages in exporting countries resulted in export restrictions, leading to a hike in global prices.

The situation triggered protests and riots in countries such as Indonesia, the Philippines and Bangladesh. –KATRINA MENNEN A. VALDEZ REPORTER
With report from AFP