Posted on September, 20, 2023 at 01:07 am
PHILIPPINES imposes rice price caps. Last August 31st, the Philippines imposed caps on rice prices through Executive Order 39, which mandated a maximum price ceiling of 72 US cents per kilo for regular milled rice and 79 US cents for well-milled rice.
History repeats itself. Now, back to 2007 and 2008, it seems that in July 2007, Vietnam restricted rice exports due to data that the volume of rice it contracted to export had equaled the total export plan for the whole year. India joined the ban in October 2007, and Vietnam banned exports in February 2008, leading to a global rice crisis.
Prices of fuel and grain skyrocketed then, with energy costs fueling edibles. Rice was exported at over $1,000 a ton in April 2008. The market frenzy over corn being used for ethanol escalated the prices of rice, wheat and corn. US corn reached $720 a bushel in June 2008, tracking wheat at over $1,000 in February that year. West Texas crude peaked at $140 a barrel in July 2008.
With the surge in global grain prices, Philippine prices also rose, even though our rice harvest was the highest in the decade. The harvest had been boosted by hybrid varieties developed with my government's funding. But as usual, the global price surge led to speculative hoarding.
Strategy 1: Securing rice needs early and boosting domestic production. To bring down prices and stabilize supplies, Agriculture Secretary Arthur Yap, a former Economics student of mine, imported rice, partly through government-to-government contracts by the National Food Authority or NFA. The Philippines bought close to 65 percent of its rice needs early, at a low early price. Later in the buying season, the only countries capable of supplying reasonable quantities of rice were Thailand and Vietnam.
The Philippines had a good relationship with both countries. Invoking old trading ties and the promise of future business, we secured the balance of our needs from Vietnam still at a good price. The Philippines eventually procured a record 2.3 million tons, and the NFA released affordable rice to the market. We kept the price of rice stable at 49 US cents a kilo and non-NFA rice was not much higher.
Secretary Yap had recounted that several traders asked him to delay releasing NFA rice until they could dispose of their stocks. He refused. Yap flooded stores, leaving hoarders with big losses.
So, what experience can we share from 2008 and other rice crises?
Maintain market clout. One obvious resilience experience is that the government in 2008 had ample market clout to defeat and deter speculators. Speculators will always seek to treble profits by holding on to stocks, which escalates prices and future gains. But we maintained market clout, especially in areas likely to suffer shortages, such as typhoon-prone regions and urban areas far from farms. The government had kept ample stocks all the time, rather than rushing to import when prices shot up.
Watch out for price-driving factors. Also, there will be both recurring as well as unexpected developments that drive prices up, such as weather patterns and market swings. Weather patterns affect harvests; they can change, and extreme events cause temporary shortages. And expect occasional global and local market swings, for instance, the rise in world corn prices due to ethanol production.
A contributor to speculative trading. Challenges in market power lead to speculative trading, especially in basic commodities which consumers have to buy, whatever the price. For example, back in 2017, the NFA used almost $40 million to pay down its debt rather than procuring rice. That and the limited harvests in the first half of the year led to speculative hoarding and profiteering. Some observers even wondered if traders had colluded with NFA insiders to deplete the agency's stocks.
More recently, last April, an Agriculture official reported that the NFA inventory was down to two days of national consumption, although nationwide stocks, including those in households, traders and warehouses, were still enough for 39 days. And domestic harvests in the first quarter were up 6 percent over a year ago. But local rice prices have already surged, and the Department of Agriculture said it was investigating hoarding and price manipulation after rice hit 99 US cents a kilo in the mountain city of Baguio, up from the usual 71 cents. The Agriculture official said, "If rice prices right now are 56 pesos a kilo (99 US cents), that's not right. We will import if needed."
Now, the Philippines is lining up imports from Vietnam and India through government-to-government contracts, which India allows.
Beyond importations, we must boost domestic production. To have sufficient rice reserves in the event of supply and market disruptions, it is important to boost domestic production. To depend too much on imports exposes countries and consumers to the vagaries of the highly volatile global rice trade.
The international rice market is thin and volatile. To quote a 2014 article by the New York Academy of Sciences, "The international rice market is regarded as 'thin' and 'volatile,' and some of the reasons for this are: (1) global rice trade accounts for only 7 [percent] of total production; (2) rice is mostly eaten in the same country where it is produced; (3) many Asian countries have strict policies and restrictions on rice imports and exports; and (4) the rice trade is highly segmented by rice variety, degree of processing and the degree of milling."
With just 7 percent of global production, rice exports are prey to all manner of disruption in a host of nations. So we must have our own production and agricultural modernization.
Financing modernization and irrigation. Early in my administration, I met several times with agriculture agencies, including the Land Bank of the Philippines, to implement the Agriculture and Fisheries Modernization Act of 1997, which allocated some $450 million a year to modernize the farming and fishing sectors.
The biggest component of agricultural modernization in a country like the Philippines, which has no great river system, is irrigation.
I realigned budget outlays and also mobilized LandBank credit to channel more than the $450 million stipulated for irrigation and other components of agricultural modernization. This not only boosted food production but also helped reduce poverty by 2 percentage points, or an estimated 2 million Filipinos, between years 2000 and 2003. It also helped that I released the local governments' share of national taxes, which had been held up in previous years.
Strategy 2: Enhancing the supply chain and addressing its limitations. Farmers in the rice supply chain pictured on the screen from the article of the New York Academy can boost or hamper output. Hence, our second resilience strategy in 2008 was enhancing the supply chain and addressing its limitations and failings, especially those that caused major market distortions. Among the many ways to do so, let me cite two we undertook in my administration.
Investing in infrastructure and distribution. One way to enhance the supply chain was to facilitate needed farming inputs — seedlings and fertilizer, grain dryers, farm-to-market roads and other post-harvest facilities. These inputs and facilities cut costs and spurred production, especially among farmers who had not bothered producing rice because there was no road to bring it to market.
The Strong Republic Nautical Highway. Speaking of transport, a second key supply chain enhancement was what I called the Strong Republic Nautical Highway, an inter-island network of roll-on, roll-off (RoRo) ports connected by quality roads connecting major islands in our archipelago. This not only lowered the cost of passenger and cargo transport by 30 to 40 percent but also made possible much new inter-island trade.
One rice producer and trader on Mindoro Island, south of our Calabarzon industrial region, had shipped her grain through Manila for clients on its neighboring island of Panay. But with the Nautical Highway, she trucked the rice directly to Panay. That enabled her not only to earn more but also to reduce what she charged her buyers. And this win-win result was replicated all over the country.
In the current administration of President Ferdinand Marcos Jr., his recent policy, which we in Congress empowered by law, of writing off unpaid agrarian reform loans and giving land titles to land reform beneficiaries, is envisioned to further boost funding and output for many thousands of hectares of rice lands. Now, farmers can use their land to get farming credit, greatly enhancing their productivity.
Strategy 3: Harnessing science and technology. A third and widely acknowledged instrument for rice resiliency is science and technology, especially for two-key strategic thrusts: the just-mentioned supply chain enhancement, including the production of the rice itself, and risk management.
An oft-quoted fact is that while world population grew 90 percent between 1966, when the first Green Revolution began, and 2000, when paddy rice output surged 130 percent.
I have also mentioned our 2008 harvest increase helped by hybrid rice cultivation. Its proponent, SL Agritech, worked with Yuan Longping, China's "father of hybrid rice." And SL Agritech has also brought its seedlings to Indonesia.
The Philippines has, of course, been at the forefront of farming technology with the International Rice Research Institute or IRRI south of Manila.
IRRI opened in 1962 when my father, the late Diosdado Macapagal, was president of the Philippines.
Water and good planting materials. As we seek out rice-related technologies, one area not to miss is sustainability. Water usage is especially crucial. We may need rice varieties that thrive in coastal and flood-prone areas. Flood-tolerant rice varieties are steadfast partners toward achieving food security amidst climate change. This is especially crucial to archipelagic nations like yours and mine, with many thousands of islands facing farmland loss due to rising oceans.
Risk management through AI, commodities exchange and rice standardization. On risk reduction, existing and upcoming risk monitoring, assessment, and management systems are good to explore and implement, including those utilizing artificial intelligence to better analyze and act on increasing mountains of data.
A 2012 Asian Development Bank paper also suggests: "Asean can play a major catalytic role in developing the commodities exchange as a viable option for addressing price risk and price volatility in rice. It could work toward removing the uncertainties and adverse impact of unilateral trade policy restrictions. Furthermore, it can initiate steps toward rice standardization and the development of a regional rice index."
It is auspicious that the 2023 Asean summit has just taken place in Jakarta. There, President Marcos called for Asean and its partners in East Asia to strengthen regional food security mechanisms.
Whether an Asean commodity system is set up, the Asean Integrated Food Security Framework and Strategic Plan of Action on Food Security in the Asean Region, established after the 2007-2008 global grains crisis, provided a mechanism for working together to enhance rice resiliency in the region.
Strategy 4: International cooperation to manage risks. This would bring us further to a resilience strategy — international cooperation and risk management can help mitigate rice problems.
As the Asean logo shows, 10 rice stalks bound together are far stronger and unbreakable than separate nations.
Our 10 nations in Asean should certainly maximize our collective mechanisms for food security and resilience.
Strategy 5: Adequate financial reserves. I will end now with one overarching experience. This applies to whatever the crisis, be it a pandemic, a food crisis, or even a potentially military one.
For any government to be able to respond, it has to have the fiscal means to do so. Indispensable in responding to the vagaries of volatile food supplies and prices, the government must have ample fiscal space and resources to quickly mobilize supplies and address scarcity and surges. In my time as president and an economist, that is what I enabled the Philippines to do — to restore our fiscal stability, even at the political sacrifice of increasing taxes. That gave us the underpinnings for resilience during our 2008 rice crisis and during the 2008 global recession.
Earlier, I mentioned my father, the late President Macapagal. He was the first Filipino leader who dared to be close friends with Indonesia during the Cold War, when Indonesia was ostracized by the West for choosing to be non-aligned.
I end my talk today with something my father often said: "Logic can mislead us, but experience, never." Today I have spoken to you not so much from logic or wisdom but from experience. I hope my story helps you, the future of Indonesia.
Source: The Manila Times