Press Release
March 23, 2008

Rice shortage politically explosive, Legarda warns
As rice prices soar to 34-year high with RP bid to corner imports

Warning that an impending rice crisis would be "politically explosive," Sen. Loren Legarda has urged the government to boldly push new strategies for the country to become self-sufficient in the staple in 24 to 36 months.

"Rice is an extremely sensitive political commodity. There is no question a big surge in the staple's price is bound to spur social unrest and political instability going forward," said Legarda, chairperson of the Senate economic affairs committee.

Legarda made the statement shortly after rice prices soared to a new 34-year high. Ironically, the fresh surge was set off by the Philippines, which on Mar. 18 awarded a tender for rice at $708 per metric ton (about P30 per kilo), up nearly 50 percent from the price it paid in late January.

"This is the only way for us to cope with the nearing rice scarcity. We should be self-reliant in the staple in short order. This is perfectly achievable," Legarda said.

"Strong local production is the best remedy for any menacing deficiency. Ample supply is the surest way for us to ward off higher rice prices as well as broader consumer price increases that may be associated with rice price inflation," she said.

The senator proposed that over the next 24 to 36 months, the government should purposely use two multibillion-peso funds entirely, if not almost exclusively, for projects that would immediately advance rice production.

She was referring to the Agriculture and Fisheries Modernization Program, which has an annual allotment of P17 billion, and the Agricultural Competitiveness Enhancement Fund, which had a cash balance of P6 billion as of Dec. 2007.

"These funds can be tapped to enable rice farmers to achieve greater productivity via exceptionally potent seeds, greatly improved irrigation, or with adequate water-impounding structures and other drought-mitigating measures," Legarda said.

"The funds can also be used to build up post-harvest facilities, so as to curb extensive losses due to inefficient rice processing, particularly in the drying, milling and storage stages," added Legarda, also chairperson of the Senate rural development and social justice committee.

"The billions of pesos should now be used, at least temporarily anyway, primarily to consciously enlarge rice production, instead of supporting an assortment of agricultural activities with a few millions here and a few millions there," Legarda said.

Should the Philippines remain a major rice importer in the years ahead, she warned "we could suffer considerably, once rice prices double or triple due to severe shortages, just like what is happening to us now as a result of the surge in oil prices."

"But of course oil and rice are totally different commodities. We can ask people to try to consume less oil, and they may cooperate. But we can't ask people to consume less rice without inviting trouble," she pointed out.

As early as 2004, Legarda said there had been telltale signs of an imminent global rice shortage "that the government failed to heed right away." She said these included:

The decision of the world's biggest rice exporter, Thailand, to rigorously control foreign sales to secure its own needs;

China's move to start importing rice due to a major local shortage; and,

The decline in rice output growth in Asia, the world's rice basket, to an annual average of just 1.1 percent in recent years versus 2.7 percent in the 70s;

China began importing about seven percent of its domestic rice requirement in 2004, and has since been drawing off 40 percent of Asia's output of the staple.

The recent decision of Vietnam and India to stop foreign sales to assure their own needs has aggravated the shortage, and increased the upward pressure on prices. Vietnam and India are two of the world's three biggest rice exporters.

Despite the surge in rice prices overseas, the state-run National Food Authority (NFA) has managed to moderate increases locally by spending billions of pesos in annual subsidies.

The NFA has been incurring massive financial losses due to the subsidies, which essentially mean it has been buying rice at market prices, and then reselling the grain here at a loss.

But Legarda warned that the annual subsidies "are not sustainable, not when rice prices are as high as they are overseas." She said the big gap between foreign and local prices would create issues later on, including opportunistic supply diversions.

The Department of Agriculture (DA) earlier acknowledged that rice retail prices have risen at least P3 per kilo versus a year-ago, and that some of the NFA-supplied rice was being diverted by unscrupulous traders and sold at much higher prices in the open market.

The country consumes yearly around 11.9 million metric tons of rice, of which about 92 percent is produced locally.

To cover what the DA described as "unprecedented supply issues," the NFA has programmed up to 2.4 million metric tons of rice imports this year.

However, the Philippines is still trying to persuade Vietnam to agree to supply most of the imports, despite Hanoi's recent decision to freeze new export approvals.

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