Betting against the weather: PH imports 1M tons of rice and hopes it is enough

Buried in the uproar over extrajudicial killings, Philippine Economic Planning Secretary Ernesto Pernia quietly said last week that the government plans to import one million tons of rice before the end of 2016.

With 900,000 tons already ashore, that would boost total imports for the year to almost two million tons. Add the amount brought in by smugglers, and the number easily exceeds the psychological level of two million tons.

The import plan is a tacit admission to what those in the grains and rice trade have known for a long time – the Philippines is facing a shortage of the staple food of its 105 million people. (READ: Kidapawan and why the Philippines is always short of rice)

Pernia said Manila wants to take advantage of a dip in prices to get supplies of the grain into the country.

The reality is that rice output by the Philippines is down this year and projections it would rise in the second half of 2016 is hopeful at best given extreme weather conditions.

The recent strong monsoon rains which have flooded large swathes of Luzon island will impact production and a worrisome tendency since 2012 of out-of-season typhoons hitting rice farms during the last quarter rice harvest will have to be reckoned with.

As it is, unmilled rice output in the first half of 2016 is projected to decline by 7.98% to 7.66 million tons, from 8.32 million tons in the first half of 2015. Yields fell to 3.96 tons/hectare in the first half, down by 1.83% from 4.04 tons/hectare in 2015.

“The negative growth was largely attributed to the adverse effects of the El Niño phenomenon, damage in yield caused by typhoon Nona during the fourth quarter of 2015 and flooding caused by the northeast monsoon rains in January 2016,” the official rice and corn outlook report of the Philippine Statistics Authority (PSA) said.

Grain traders and analysts have been expecting the Philippines to import large amounts of rice because the country faces escalating rice prices this year (See table below) due to tightening supplies and a poor harvest caused largely by the strong El Niño of 2015/16.

Average prices in the first week of the months of 2016 for retail well milled and regular milled rice compiled from the PSA in pesos/kg:

 

                             August     July     June     May     April    March

 

Well milled            41.85     41.56   41.35   41.19    41.09    41.04

 

Regular milled       37.34     37.13   36.95   36.81    36.66    36.64   

 

Some 750,000 tons are expected to come from government-to-government deals with neighbors Thailand and Vietnam. Private companies are responsible for the remaining 250,000 tons.

Even Myanmar and Cambodia may wind up supplying some of the grain although that prospect is seen as unlikely for the moment.

On the lower prices that Pernia mentioned, the record there is mixed.

The price of Thai 25% broken rice was quoted on August 17 by exporters in Bangkok at $409 per ton FOB (free on board) which is the price of the rice up until it is put on the ship. It does not include insurance and freight.

The price of Thai rice on an FOB basis has not gone below $400 since early May. The current Vietnamese price though of $335 per ton FOB is at its lowest for the year.

The Philippine government calculation is that the 1 million tons should be enough to cover exigencies caused by the weather later this year.

The question is: can we trust the government bet?

Precarious balancing act

It is a precarious balancing act. Manila has to weigh the interests of its politically influential rice farmers against the needs of consumers, especially in its price urban areas like Manila and Cebu.

The farmers want high prices it can sell into, and consumers want some relaxation of those price pressures with larger imports.

The government also needs to be prudent in managing its rice inventories. As of July 1, government warehouses have enough rice for 27 days of consumption and commercial warehouses have 25 days.

The ideal stock level is 90 days. Even if one adds household stocks, the amount still falls short at just over 80 days.

Even if the government wants more rice, the problem is that warehousing can be expensive as rice, like anything else, can spoil.

But the real problem with the whole equation really is the weather.

Typhoon Nona struck in the middle of December 2015 and an earlier storm, Typhoon Koppu, hit at the start of October, effectively bracketing the rice harvest with ruinous floods.

The last quarter rice harvest is the Philippines’ biggest so any storm during that time will always have near disastrous consequences.

The problem is that, since 2012, an out-of-season typhoon has struck the Philippines and its rice farms like clockwork. The worst is the record Super Typhoon Yoland (Haiyan), which demolished Tacloban in 2013 and went on to ravage Leyte and Panay islands in the Visayas.

A La Niña weather pattern is also developing in the Pacific and its impact is essentially unknown.

While an El Niño brings drought, a La Niña could spur an intense monsoon as seems to be happening now.

At a time when climate change and global warming is leading to a longer typhoon season, the smart money would be on one or more typhoons hitting the Philippines again in the last quarter of the year to endanger the rice crop.

If that is the case, one million tons of rice may not be enough to keep a lid on prices. – Rappler.com

Rene Pastor is a journalist in the New York metropolitan area who writes about agriculture, politics and regional security. He was, for many years, a senior commodities journalist for Reuters. He founded the Southeast Asia Commodity Digest, which is an affiliate of Informa Economics research and consulting. He is known for his extensive knowledge of agriculture and the El Niño phenomenon and his views have been quoted in news reports.