“A kilo of commercial rice sold in Bangkok at roughly P45.11. In Vietnam, the staple sold for P59.01 a kilo, or almost double the average May per-kilo Philippine price of P33.26.”
by Ducky Paredes
Agriculture Secretary Arthur Yap has come up with a proposal on how the world can stabilize the prices of food staples. He proposed before a global conference on food security that a global reserve or stockpile for rice, wheat, corn and other basic staples be set up of as a way to rein in the abnormally high prices of basic staples around the world.
At the recent High Level Conference on World Food Security hosted by the Food and Agriculture Organization (FAO) in Rome, Yap called on donor-countries and multilateral agencies to support international actions meant to stabilize food markets.
Under Yap’s proposal, contributions to this food reserve, which he says could first be set up in Southeast Asia, could come from all member-nations as well as from interested donor-countries and multilateral financing institutions such as the World Bank, the Asian Development Bank (ADB) and other regional development banks, and the International Fund for Agricultural Development (IFAD).
As proposed by the secretary, this food reserve could be managed by an appropriate United Nations (UN) agency with a track record in administering food reserves, like the World Food Program.
For Arthur Yap, rice should be first on the list of the proposed global reserve inventories because it is the staple consumed by almost three billion people.
Also, rice has been most prone lately to sharp price fluctuations as a result of “a very thin market” as only 5% to 7% of total production of this grain is traded across the world. Current rice prices are 68% higher than year-ago levels and about 53% higher than they were in January.
This proposal will benefit both deficit and surplus countries because a price band will be maintained and, which, at the low end, will serve to protect producers in exporting countries from falling prices. The high end of the band will, on the other hand, serve to shield consumers of importing countries from the impact of soaring prices.
Under the Yap proposal, can borrow funds from participating multilateral financial institutions, using their stocks as collateral.
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How can the government, through the Department of Agriculture (DA) and National Food Authority (NFA), continue to distribute and sell rice at a subsidized price of P18.25 a kilo and commercial rice at P25 a kilo, even as the world price of all grains, including rice, is at an all-time high?
It is a fact that our prevailing domestic prices are actually less than the rice sold in the domestic markets of the world’s top two exporters—Thailand and Vietnam. When Thai Prime Minister Samak Sundaravej visited Guadalupe market in Makati during his two-day trip to Manila last May, he pointed out to Agriculture Secretary Arthur Yap that the price of rice in the market was at the same level as the price of rice in Bangkok.
Arthur Yap was not surprised at this.
In fact, the Bangkok price is higher. NFA research reveals that a kilo of commercial rice sold in Bangkok at roughly P45.11. In Vietnam, the staple sold for P59.01 a kilo, or almost double the average May per-kilo Philippine price of P33.26.
If anything, the higher price levels in Bangkok and Hanoi, compared with those in Manila is the best proof that the escalating rice price is not just a Philippine problem but a global one that affects exporting and importing countries alike—and which is beyond the control of the Philippine government.
This rice subsidy has so far cost the government a total of P20 billion so far in 2008. The NFA bleeds at the rate of P10 a kilo. The NFA buys high and sells low; and President Arroyo even raised the palay support price to P17 from the previous P11.
At the milling recovery rate of 65% from palay to rice, the NFA, at the support price of P17 for palay, buys 1.53 kilos of palay to produce one kilo of rice or P23-worth of palay for a kilo of rice. If one were to factor in all other expenses such as milling, packing, transporting and storage, the NFA should be selling rice at around P28-P30 a kilo just to break even.
How does the NFA do it? According to Secretary Yap, the fact that the government can support the rice price at an affordable level for the poorest Pinoys is the best proof that the economy is faring well under President Arroyo.
If not for the strong macroeconomic fundamentals put in place by President Arroyo since 2001, the government wouldn’t have enough cash to subsidize rice prices for low- and middle-income consumers and, at the same time, bankroll its complementary subsidy programs in the energy and education sectors.
The fiscal turnaround, says Yap, has also allowed President Arroyo to raise farm spending to its highest levels, enabling the DA to step up the implementation of its location-specific intervention measures, which, in turn, perked up national palay production to a record 16.32 million metric tons in 2007 and a projected 17.23 million MT this year.
Total harvests this dry cropping season of at least 7 M metric tons of paddy rice have already exceeded the 2007 harvest of 6.7 M MT for the same period. Together with NFA-secured imports of 2.3 million MT, the food agency has enough inventory to engage in “selective bombardment” of rice in places where there is undue price fluctuations, as happened recently in Davao and General Santos.
A check done by the NFA in the two cities showed that rice was actually at P35 to P40 a kilo and the reported P50 a kilo was for the fancy varieties like milagrosa and upland rice, which are really higher-priced. Yap directed the NFA to double its release of government-subsidized rice stocks in Davao and General Santos to stabilize retail prices in these cities.
What is significant is that the government, through the DA, is on top of the situation. It has come up with a five-harvest plan to make the country at least 98% self-sufficient in two years; time by boosting total palay output from a record 17.32 million metric tons this year to a higher 18.5 million MT in 2009 and 19.7 million MT in 2010.
Agriculture officials are bullish on hitting or even exceeding this 2008 target as the summer output already hit 7.1 million MT with standing crops in almost a tenth of all palay fields still waiting to be harvested.
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hvp 06.29.08)
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