Price spike? Blame Aquino’s rice policy, not smugglers–PIDS

MANILA – Traders, rice cartels and smugglers are easily the best people to blame for the spiking rice prices but a research fellow at the Philippine Institute for Development Studies (PIDS) says the Aquino administration’s rice self-sufficiency program and import policy may be the culprit for these recent price increases.

Economist Roehlano Briones in an interview told InterAksyon.com that the recent tightness in rice supply is a “carryover” of the government’s past policy.

“I don’t think there is sufficient stocks and we will fail to meet production target this year,” he said.

Price increases of P1-P2 a kilo is a “very historical trend” and this year would be no different given that the country will experience El Nino and harvest season has yet to commence.

“It’s kind of odd to increase our imports now when the government has failed to get its shipment target [from Vietnam]. It’s a matter of policy, [Philippine] government not being able to follow through. We have to probe into that since there seems to be an implementation problem,” said Briones, who was one of the panel of experts invited by Senate last year during a rice price inquiry.

2013 rice supply

According to a policy study by Briones and Ivory Myka R. Galang, there was inadequate supply of the staple starting mid-2013 because of government policy of reducing rice imports in line with its rice self-sufficienct program.

“Such reduction was neither compensated for by a commensurate increase in domestic production nor by a timely release from the buffer stock,” the researchers said.

In September last year, rice prices have gone up by P1-P2 per kilo in public markets amid tight supply in warehouses. The Department of Agriculture, told Senate during a budget hearing that smugglers, who were spreading rumors of rice shortage, were to blame for the spike in prices. Senate then said DA could only assure rice supply but not the prices as this is dictated by market forces as 95 percent of the stocks are in the hands of private sector.

“It is easy to blame rice traders and smugglers for price manipulation, but it is another thing to produce evidence for this accusation. Price manipulation would entail restriction of supply from all sources, including from outside the country, which is not exactly consistent with the problem of rampant smuggling in the imagination of the public,” Briones and Galang said.

No price collusion

A rapid appraisal of the competition in Philippine rice marketing done by Beulah dela Pena and other PIDS studies showed that there is “strong competition” at all levels of rice supply chain. One study even stated that there is no evidence to prove that there is indeed cartel and this was consistent with data that showed margins are small at two percent at most at wholesale and five percent at retail.

“Even if collusion exists, the ability of traders to influence the market price is negligible,” dela Pena, a research fellow at PIDS, said.

Briones and Galang, on the other hand, suggested that the more logical explanation in the changes in the supply of rice is the sharp drop in imports. Figures showed that the imports fell by 638,000 tons in 2013, in line with DA’s Food Staples Sufficiency Programs where the Philippine government aims to be 100-percent rice self-sufficient by the end of last year.

“However, production targets were set at unreasonably high levels to achieve self-sufficiency by 2013. The palay production target for 2013 was 20 million tons of paddy from a target of 18.5 million tons in 2012. Since 2012, however, actual palay production fell far short of the target,” the researchers said.

Local short supply, global oversupply

Although palay production hit 18.03 million tons, the balance of 439,000 tons, or an equivalent of 287,000 tons of milled rice was not enough to counter the effects in the drop in imports, the study showed.

Briones and Galang noted that the farm gate prices in the second semester last year increased as farmers may have anticipated the price of paddy rice would increase given the reduction in imports. Because of this, they hiked production, which could explain the improvement in harvest during the fourth quarter last year.

“The farmers made a profit from their correct forecast. These trends were advantageous for the farmers but clrearly not for the consumers who took the brunt of higher rice prices. With less imports, the country missed taking advantage of the cheap rice available in the world market,” the PIDS research fellows said.

Indeed, Dr. Sam Mohanty of the International Rice Research Institute (IRRI) last year said that global rice prices have been spiraling downward last year due to the excess production in major exporting countries like Thailand and India. This year, he said, the global rice market would be able to handle moderate drought caused by the El Nino phenomenon given the high rice stocks in Thailand, which is still reeling from its internal political turmoil.

“The recent failure of Thailand to win the Philippine tender for 800,000 tons of rice is a good example of the extent of competition in the rice market right now. Vietnam’s state-owned agencies Vinafood 1 and 2 were awarded the contracts because of lower price quotations. Thailand is unlikely to obtain any relief in the nearterm as the supply situation in both India and Vietnam is very good,” Mohanty said.

Tariffication

Briones told InterAksyon.com that even if the world rice market would likely stable–despite the expected drought in the country and in other rice-exporting nations–the Philippine government is still in a tight bind and would not be able to take advantage of the lackluster prices.

“Rather than raising or dropping imports, ngayon pa lang you slap tariffs on our shipments and leave the private sector to do its importation. The private sector is not slow, they can bring in imports quickly and prices would go down,” he said, adding that this is a well-known feature of the international rice market.

By tariffication and letting the prices be dictated by market forces instead of the artificial pricing influenced by government policy–or in this case, the National Food Authority–the Philippines can take easily stabilize its local rice market.

Tariffs instead of rice quotas, which the Philippines is still fighting for, would make imports much cheaper than the locally produced rice. This, however, would hurt the local farmers, whom the DA has been protecting all these years.

For now, however, the Aquino administration has to contend with high prices and very tight supply until it solves the problem with Vietnam and its dwindling rice stocks in both government private sector warehouses.

Filipinos may have to just grin and bear it. –Likha Cuevas-Miel, InterAksyon.com