V1 1st ISSUE

Looming Rice Crisis: Implications to Business

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Looming Rice Crisis: Implications to Business

At a Glance:

• While the Department of Agriculture is denying there is a rice shortage, the empirical evidence at the ground shows that the staple food of the Filipinos is fast disappearing in the market while prices of available stocks are rising. Commercial rice now sells as much as P34.00 a kilo (approximately US$ 0.85). The National Food Authority (NFA) rice, which is the cheapest at P18.00 per kilo, is about to be increased to at least P25.00, pushing the prices of commercial and imported rice even higher.

• The price of pan de sal (ordinary bread) had just increased from P2.00 to P2.50 per piece, due to the higher cost of imported wheat. Fuel prices are also on the rise. Premium gasoline is expected to hit P50 per liter by May.

• Demand for higher wages is as pressing as ever. While the Department of Labor and Employment (DOLE) has yet to receive formal petitions from the unions, they are already studying the possibility of incorporating the P50 allowance to the minimum wage and granting an additional increase of no less than P12.00.

• Inflation rate for the 1st quarter of the year has gone up to 6%, according to data from the Central Bank.

3The Culprits:

• The country has not been self-sufficient in rice since the mid-1960s, after which we have had to import the cereal, year after year after year, an average of 800,000 metric tons of rice since 1996. In 2007, the Philippines became the biggest rice importer in the world with 1.8 million metric tons importation, a shameful distinction since the Philippines is host to the International Rice Research Institute (IRRI) in Los Banos, where agriculturists from all over South and Southeast Asia have learned the most modern technologies for growing rice.

• Compounding the Philippine food problem is overpopulation. It is producing more children faster than it can grow the food to feed them.

• Furthermore, converting millions of hectares of farmlands from food crops to bio-fuel crops – sugarcane, rapeseeds, jatropha trees, etc – has reduced food harvests worldwide as well as locally and has consequently raised the prices of food staples.

• The government’s failure to provide technical support for the farmers.

• The government’s program on food security that is “based on importation” the government has allocated P2.5 billion for domestic production and P10 billion to P14 billion for importation.

Government Response: • The National Food Authority started selling rice in one-kilo bags, instead of by the 50-kg sack. The Arroyo government is toying with the idea of directly selling rice in depressed communities to thwart attempts of speculators to cash in on government rice subsidies. • Upon arrival from Hong Kong last April 1, President Arroyo convened the Cabinet right at the Ninoy Aquino International Airport during which she nnounced that she was authorizing the use of P5 billion to subsidize the country’s rice farmers and ensure a steady supply of the cereal.

• She also said that local government units can tap the P32 billion budgetary surplus to encourage rice production. • President Arroyo also raised the farmgate price of palay from P12 per kilo to P17 per kilo, a significant 42 percent increase. • Tariff on rice importation has been removed. At the same time the government itself through the NFA plans to import 500,000 metric tons of rice at $1,000 per ton with an estimated $1.3-billion loss calculated based on the difference between the import price and selling price. The government aims to import 2.6 million metric tons of rice in 2008, 44 percent more than in 2007, to build up stocks and prevent shortages.

• President Arroyo has enlisted the support of the Roman Catholic Church through the Catholic Bishops’ Conference of the Philippines (CBCP) in the distribution of subsidized rice to the poorest of the poor, especially in Metro Manila. • The budget for family planning is being increased this year from P200 million to P2 billion, of which P800 million will be used for an education-information campaign to help couples decide which method of birth control they will adopt; and P1.2 billion will be used for condoms and birth control pills that are “medically and legally permissible,” for free distribution to poor families.

“ ...PHILIPPINES BECAME T HE

BIGGEST RICE IMPORT ER IN T HE

WORLD WIT H 1.8

MILLION MET RIC TONS

IMPORTAT ION...”

4Prognosis:

Arroyo fears hungry voters would take to the streets if rice shortages were to emerge, and has taken extraordinary steps to guarantee sufficient supply but her public moves have helped increase prices, encouraged hoarding, and stoked anxiety.

The steps being undertaken by the Arroyo government are for the short-term. Clearly, it will have an adverse effect if the long-term solutions are not acted upon.

It is not clear if this increase in farmgate price is part of the P5 billion subsidy announced early April. But it can be said with confidence that the positive feelings that this series of moves was meant to generate is tempered with fears that this new bonanza to rice farmers may also be a bonanza for the embedded crooks in her biological and official families. The looming rice crisis has not diverted the issue of corruption but instead exacerbated it.

While it takes at least three (3) months to plant and harvest rice, long=term solutions should be put in place. One of these is the use of technology. Less than 1 percent of Filipino farmers use tractors and power tillers. Only five bags of fertilizer from the recommended eight per hectare are being used. Only 15-20 percent of total harvests, 65 percent at post-harvest level, are recovered due to lack of mechanization. These result in a low productivity of around 3.5 metric tons per hectare, making the Philippines one of the lowest producers in Southeast Asia.

The lack of support is worsened by the existence of a “rice cartel and unscrupulous traders and government officials who manipulate stocks and prices, as well as previous scandals, such as P729-million fertilizer fund scam, whose effects are now being felt.

Implementation of the moratorium on land conversion is also called for. Executive Order No. 363, issued in 1997, specifically bans the conversion of irrigated and irrigable rice lands.

While the business climate remains stable up to this point, there being no food riots like in other countries, rising wages and inflation rates will make doing business in the Philippines a bit more expensive.

For sure, the Arroyo government will do everything and use whatever resources under its power and disposal to avert the looming rice crisis. Empty stomachs make be the last straw that could shake the dormant people from their lethargic and apathetic state.