Rice situation: an expert’s view

Philippine Tribune
Philippine Tribune

According to a respected agricultural economist from Harvard, the good news is: “The world rice market has, so far, survived these severe shocks with heartening resilience and little panic. The major exception, the decision by President Marcos in the Philippines to place a mandatory and highly restrictive price ceiling on rice throughout the country…

“If the price ceiling is administered flexibly and with regional nuance, it will not threaten the credibility of the government or cause severe disruption to the Philippine rice economy. If the edict stands as issued, it will still be unenforceable. Either way, this is a remarkable opportunity to ‘learn from experience.’”

C. Peter Timmer, an agricultural economist and a professor emeritus at Harvard University, shares the view of the USDA that Indonesia and the Philippines will come through the global rice shortages in good shape.

In a recent article at the Asian Journal of Agriculture and Development, the professor analyzed our recent moves and why the President probably erred in his handling of the rice issue, particularly the rice price cap.

“If consumers and traders have well-founded expectations that the price of rice is going to increase sharply, hoarding is rational economic behavior. In order to prevent hoarding by all participants in the rice marketing system, and the sharp spike in rice prices that it causes, governments must manage, that is stabilize, those expectations.

“Such management requires careful planning, especially about the level of public rice reserve stocks, and clear communications to all interested participants in the rice economy.”

We did exactly the opposite. A DA usec fanned the flames of panic by announcing we hardly have any buffer stocks in the NFA warehouses. That was the signal for traders to hoard and for prices to rise, specially in the public markets. The better response came from Usec Leo Sebastian, who pointed out the harvest season in the next few weeks which they expect to produce enough for the coming months.

The professor rightly highlighted the importance of “current credibility”.

“A government caught deceiving the public about the reality of rice supplies, and its ability to ensure those supplies are delivered to urban markets, faces an extremely difficult path to recovering public trust…”

Of course, there is no escaping the realities of the rice market today.

“Rice is a scarcer and more valuable commodity than before El Niño returned and Russia escalated its attacks on Ukraine’s wheat and corn exports. Accordingly, rice prices are likely to go higher over the next six to 12 months.

“How much higher? Perhaps another $100/mt for Thai or Viet 25 percent brokens is likely. The big question is whether the price rise will be gradual, giving consumers time to adjust without panic, or whether there will be a rapid spike to $1,000/mt or higher. The fact that there has been little panic in local markets since the Indian announcement in late July gives hope that the increase in rice prices will be gradual and contained.”

This is why reducing the tariff on imported rice was critical to making sure we are able to continue importing enough higher priced rice to increase our buffer stock. The tariff reduction should help cover the higher price of rice imported from Vietnam and Thailand. Without it, our traders have been cancelling their orders from Vietnamese suppliers. The President  apparently didn’t understand this.

The upward price trajectory is a given. But the professor thinks the concern should be over the impact of higher rice prices on food security of the poor, not aggregate inflation.

“The great paradox of food security is that only governments can ensure it, but markets must ‘do the heavy lifting’. Learning to manage this symbiotic relationship, on both sides, has been difficult for most countries. East Asia has leaders and laggards in this historical process.

“Much of the agricultural economics profession’s understanding of the negative effects stemming from chaotic and badly administered interventions into private rice marketing activities was documented early in the Philippines. The country has been badly conflicted for decades on how to manage this critical public-private interface.”

The professor is hopeful things won’t get worse because in India “contracts already being fulfilled in terms of physical loadings are being honored. As chair of the G20 this year, India seems to be trying to balance its domestic needs with maintenance of its reliability as a rice exporter (farmers will matter in the election).”

What happens next? Here is how the professor sees it.

“Going forward, three countries need to be watched quite closely. First, will Indonesia receive the full one million tons of rice it contracted from India? If it does, which now seems likely, that will calm the whole world rice market (and India knows this).

“Second, is the Philippines in good shape in terms of stocks? The experienced economic technocrats in the Cabinet seem to have planned ahead for this contingency, and the price ceiling announced by the President caught them by surprise. The Philippines might yet be a wild card in a scramble for additional rice imports.

“Third, will Vietnam continue to export normally? So far, the country has remained an active exporter, but there is always the danger of a domestic hoarding run that will force the government to restrict exports. Managing price expectations in Vietnam is now critical.”

The President is set to appoint an agriculture secretary whose background is in the fisheries business. But maybe, because he is a prominent Chinoy businessman, he has enough connections and persuasive powers to make the Divisoria rice traders manage their greed.

The professor doesn’t see serious rice shortages, but there will be somewhat higher prices. He cites the August release of World Agriculture Supply and Demand Estimates, WASDE showing world rice production for the 2023/24 marketing year is forecast to be 8.1 million tons larger than in 2022/23.

“World use is forecast down one million tons to 523 million, as fewer imports by many countries in Asia and Sub-Saharan Africa reduce consumption (USDA 2023).”

Without panic, we should be okay. Our leaders should learn from the past, as former president Gloria Macapagal-Arroyo said in a speech in Indonesia. We are our own worst enemy.

Boo Chanco’s email address is [email protected]. Follow him on X or Twitter @boochanco

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