GMA ADVISER WARNS OF LONG 'RICE DEFICIT'
MANILA, MAY 5, 2008 (STAR) By Paolo Romero - President Arroyo’s economic adviser warned yesterday of a prolonged “rice deficit” in the country even as he said government estimates of harvests this year are overly optimistic.Albay Gov. Joey Salceda also hit some foreign governments and institutions for unfairly blaming the Philippines for the rice price spikes in the global market, saying “they were misplaced and proceeds from a superficially hysterical market analysis.”
In an updated report he presented to Mrs. Arroyo at Malacañang on Wednesday last week, Salceda warned that the domestic rice market “appears deceptively pacified” as commercial rice prices are subsiding with the massive National Food Authority (NFA) imports “now being gushed into domestic markets and being sold at huge losses.”
He said palay prices are correcting at the peak of dry harvest season while rainy conditions force farmers to sell fresh harvests, rather than dried, at lower prices and this reflects the “tactical savvy of the Department of Agriculture (DA) in the field.”
But he said subsiding domestic rice and palay prices “mask underlying threats that could lead policymakers and economic managers to minimize the market disequilibrium as being merely cyclical and seasonal when it is essentially structural (new cereal demand for green energy and for feeds for higher protein consumption due to rising incomes in China and India) and secular (demographic).”
He warned the government could be approaching the problem with “tactical tools like throwing money at the problem rather than with long-term strategic policies like rational land use.”
Salceda said the government has imported 2.1 million metric tons (MT) for the country’s “national rice deficit” with the assumption of palay production of 17.3 million MT in 2008 and that assumes 10.1 million MT harvest in the wet season since the dry season is already in.
“Several factors however could seriously derail the attainment of such target as they pose higher risks farmers must take or higher returns they forgo in planting rice,” Salceda said.
First, he said, domestic rice prices are now substantially lower than world price for both palay and rice, and they have substantially fallen from recent peaks and are even lower than the pronounced support price of P17 or its equivalent price in rice form.
He also pointed out that prices of other commodities have been permitted to more freely adjust to their global levels even as rising input prices, particularly petroleum, fertilizers and certified/hybrid seeds, have similarly been allowed to adjust to world prices.
Salceda also warned of some 52,000 to 120,000 MT shortage of fertilizers in the country could pose “production rigidity.”
He said much of the incremental rice production in 2007 and 2008 harvest principally came from rain-fed areas “care of the benign La Niña.”
“What would further complicate and compromise our rice targets for the coming wet season cropping is weather with typhoons historically stronger every two years or during even-numbered year like 2008,” he said.
Salceda warned that such emerging rice shortfall might just trigger a bigger food crisis in the context of the emergence of Organization of Rice Exporting Countries (OREC), a cartel pushed by Thailand.
Fertilizer, he said, “is problematic and is critical” to the attainment of higher production target of 700,000MT increase in palay production already factored into the computation of the 1.8 million MT deficit in 2008. The DA in consultation with the fertilizer industry is estimating a shortage of 120,000MT in fertilizer.
As a result, fertilizer prices are likely to increase further ahead of the wet planting season. A typical six-bag package per hectare likely to jump to P12,300 per hectare from recent P9,350, he said.
As the largest importer in the international market for rice, the Philippine buying behavior will naturally be a determining factor in global price movements, he said.
But to blame the Philippines, as Deutsche Bank did, for its practice of pre-announced rice purchases, “is misplaced and proceeds from a superficially hysterical market analysis,” he said.
“In fact, such pre-announced tendering is in line with the transparency requirements of our procurement rules. It is funny but World Bank, inspired by the same faulty suspicion, has suggested ‘confidentially in writing’ to rice authorities to do it differently now. Whew, that is short of changing the implementing rules or close to violating the spirit of the law. So much for evolving benevolence of WB interference in domestic policies. Indeed, it is easy to be silly in a state of analytical frenzy,” he said.
The sudden announcement of the formation of the OREC, he said, is perhaps, “the best proof that it was the behavior of exporting countries that precipitated the (price) spikes.”
Salceda said a constructive approach the country may initially take towards its friends in ASEAN is for the formation of a more inclusive and expansive Organization of Rice Producing Countries under whose auspices would be a common strategic rice buffer.
Crisis will be averted
The Institute of International Finance (IIF), on the other hand, said the spike in food prices in the Philippines is a hardship on the population and a drain on government resources but prevailing conditions suggest a crisis will be averted.
As the largest rice importer in the region, the Philippines is particularly vulnerable to strains in the global rice market but the prospect that more supplies will be forthcoming in response to higher prices should gradually help calm the markets, IIF said in a review of the economies of leading emerging markets in Asia — China, India, Indonesia, South Korea, Malaysia, the Philippines and Thailand.
The IIF report, released in Washington on Saturday and at the annual meeting of the Asian Development Bank in Madrid, Spain, said the Philippines has already met about two-thirds of this year’s import target of 2.4 million metric tons.
Some of the recent spikes in global food prices, particularly rice, appears out of line with prevailing supply and demand conditions, said IIF, a global association of financial institutions created by banks in leading industrialized countries in 1983 in response to the international debt crisis.
Planting and harvest cycles are not synchronized with short-term price swings, making it difficult for the markets to quickly correct supply and demand imbalances, the report said.
It said there was a shortfall in revenues in the Philippines in 2007 and the target to reduce the deficit to 0.4 percent of GDP this year would be difficult to achieve particularly in light of the additional outlays for rice subsidies and the absence of new tax measures.
IIF projected real GDP growth for the leading emerging markets in Asia will expand by around 8 percent this year, down from more than 9 percent in 2006 and in 2007 because of the prospect of more restrictive monetary measures and a softening in external demand.
More rice sources
In San Fernando City, La Union, Joseph dela Cruz, regional director of the National Food Authority, told The STAR that the country will have to import additional rice to sustain the supply during the lean months, from July to September, until the next harvest in October
Nueva Ecija Rep. Edno Joson, meantime, said yesterday that rice importation this year can net at least $200 million (about P8.4 billion) for corrupt officials who are due to retire soon.
Joson said President Arroyo had earlier authorized the importation of one million metric tons of rice.
“But now the importation level has risen to 2.1 million metric tons. So there is at least $200 million in commissions to be made by corrupt officials, who are apparently preparing for retirement,” he said. - With Jose Katigbak (STAR Washington Bureau), Jun Elias, Jess Diaz
Reported by: Sol Jose Vanzi
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