Rising prices: Crisis in the making

Rising prices: Crisis in the making
BIZLINKS By Rey Gamboa (The Philippine Star) | June 24, 2014

Inflation figures released by the National Statistics Office for April have shown a much higher level compared to the 3.9 percent posted the previous month. While it’s true that this 4.1-percent increase is still within the projected band of between three to five percent that had been forecasted by the National Economic and Development Authority (NEDA), it should set off some worrying by our government.

In recent weeks, prices of food (including rice, pork, beef and vegetables), electricity, and fuel have been rising. It’s been awhile since Filipinos have seen this kind of price instability of so many basic commodities at about the same time.

And after having enjoyed a long period of relative stability in inflation rates, one can’t help fear that a bubble is just about to burst.

Global trend

The World Bank, too, has expressed concern about rising food prices in the global market which has been attributed to droughts in some parts of the world, political and economic stress in some major food producing countries, and the rising demand by China.

In a recent report, the Bank said that world food prices increased by four percent from January to April compared to the same period last year, putting an end to relatively stable food pricing across the globe that started in August 2012.

Business ( Article MRec ), pagematch: 1, sectionmatch: 1

 
Among the headliners in food products that saw increases were wheat and maize, which were up 18 and 12 percent, respectively, despite the bumper crop harvest last year and projection of higher farm production this year. Both are extensively imported by the Philippines.

While the movement of rice in other major rice producing countries have been mixed (increases in Myanmar and Somalia, but decreases in Thailand and Cambodia), the Philippines had shown double-digit percentage price spikes which was attributed to low stock levels.

Within the year, the National Food Authority (NFA) is looking at further hikes in domestic rice prices, citing the continued drought experienced in some major rice producing regions of the country and the recent increases in the price of fuel.

Other food products affected

Aside from rice, the Philippines has also recently experienced higher price movements in other basic commodities like pork, chicken, beef and vegetables. Again, the NFA is saying that the rise in international crude oil prices, which is immediately reflected in service stations, is to be blamed.

Crude oil has reportedly risen three percent to $104 per barrel. This has also caused electricity rates to rise.

Readiness

International organizations like the World Bank and the Asian Development Bank have continued to warn about possible dire consequences on marginalized sectors of Philippine society arising from the recent spike in food prices.

While there is a possibility that these price hikes are temporary, as had been assured by the Bangko Sentral ng Pilipinas, it would not be amiss to bring out the options in case domestic food prices continue on its upward trend.

Of course, on a macro level, the BSP is confident that interventions like raising interest rates and hiking banks’ reserve requirements to 21 percent from 20 percent in September will be able to control inflationary tendencies.

Still, on the ground, nothing is quite as comforting as knowing that our farmers are protected from global shocks. And unfortunately, this can only be achieved if our government would give more attention to providing support to local food suppliers.

Securing the country’s food supply should be a major program by the government, perhaps even more important than building those skyways.

After all, traffic congestion does not kill; hunger does.

What is wrong with NFA-Vinafood mega-rice import contract

Our regular column contributor, Manuel Q. Bondad, shares his surprise on why the Vietnam government is pressing for a renegotiation of the recently signed and announced rice import contract between Vietnam and the Philippines. Here are his thoughts:

“The report “Vietnam to re-negotiate rice contract with Philippines” (VietNamBridge, June 2, 2014) more than a  month after our ally’s state trading firms won the recent mid-April auction for the importation of 800,000 metric tons of 15 percent rice brokens is unsettling news amid escalating domestic retail prices and a looming El Niño.

“What appears to have gone wrong? The same news agency on April 19, 2014 had reported in an article (“Exporters bargain rice away, farmers suffer”) that Nguyen Hung Linh, chair of the Vietnam Food Association (VFA) of which the victorious Vinafood 1 and 2 are members, “declined to provide information about the winning bid, but said the winning bid was a reasonable market price.”

“To our recollection, this is an unprecedented development. The directive (by the VFA and the Vietnam Industry and Trade Ministry) to “re-negotiate” the contract with the NFA appears to be anchored on “ the overly low bid that Vinafood 1 and 2 made to the Philippines to win the contract, and the strict requirements in the contract.”

“In our view, the pricing parameters on the auction could be a problem and was not a settled matter. A source of VietNamBridge was quoted, “Vietnam obtained the right to sell to the Philippines for $439 per ton CIF (cost, insurance, freight).”

“The NFA has accepted and announced the price to be CIF (“landed cost,” cost, insurance, freight)/DDU (“door to door” including port cargo handling and delivery to designated warehouses). In fact, the 2013 rice contract with Vinafood 1 for 705,700 MT (25 percent brokens) for $461.77 was on a CIF/DDU basis as reported in Manila.

“How will the issue be resolved speedily and fairly? Will a cheaper rice grade and/or an assumption by the NFA of port cargo and delivery expenses be acceptable?”

Leave a Reply