rice supply in the Philippines

[ANALYSIS] Brinksmanship and the mismanagement of our rice buffer stock

Dean de la Paz

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[ANALYSIS] Brinksmanship and the mismanagement of our rice buffer stock

Raffy de Guzman/Rappler

'What a mess! Not only can’t these characters manage their buffers, but they also can’t even manage a lie.'

Fuel and food are painful commodities that impact the most on our consumer price index (CPI). Inventory reserves, stock valuation, aging, forecasting, pricing, and buffers temper their volatility and price swings. When mismanaged both account for impoverishing inflation, leading many in the countryside into despondence and desperation. 

When an economy which should be focusing all its energies on self-sufficiency is embarrassingly among the most dependent on costlier importations next only to China; when the imported product depends on seasons, harvests, and long gaps in between; when the product is as fragile as a short-rooted, water-dependent plant; when, between demand and supply, one is relatively more stable than the other, then buffer management becomes critical. More so when the product is a kitchen table staple.

For rice, given its largest global exporters had been telegraphing their intent to reduce exports as far back as late 2022, plus the numerous forecasts that factored in the predictable El Niño phenomenon, it behooves us to question why we continue to engage in brinksmanship with a commodity as critical as rice.

Fuel and food inflation in the rural sector and among the islands are multiples of what they are in the cities. Whatever their prices are in Manila, double those and one easily gets an idea what the rural folk suffer. In some areas, especially for food, the multiples are 300% higher.

The Secretary of the Department of Energy and the Secretary of Agriculture remain impotent, reduced largely to monitoring, and like benign bystanders, given the kind of governance inflicted on us, both remain unapologetic for the bang-up job they’ve so far delivered. Prices among the two inflation catalysts remain volatile due to thinned-out buffers. For those who can still afford them, hopefully the affliction is temporary. 

Unfortunately, temporary is a relative term and competent buffer management should be the determinant. By the first quarter of 2024, if the September harvests fall short, our nightmarish P45 to P57/kilo price of rice may ultimately appear as the good old days and Marcos’s delusional P20/kilo packet, a painful politician’s joke. Officials are betting on a bumper harvest starting this month to extend what was a totally inadequate buffer estimated over a month ago at around 37 days. Unfortunately, for prices and programs to reduce domestic costs, and make local supply viable, nothing’s been effective so far. 

The duration of “temporary,” and indeed its impact, depends on such diverse factors as levels of resilience, capacity for pain, patience, understanding, ignorance, and attitude. These are the sociological, cultural, and perhaps the esoteric coefficients or Betas of the misery index that determine whether the public wallows in a pit of despondence and desperation or have enough buffers to carry them through.

The numeric coefficients of our resilience also serve as resiliency benchmarks. If they were understood. 

Economists can argue until they turn blue in the face discussing per capita gross domestic product (GDP) versus GDP growth. Or inclusivity and the Gini Coefficient, the Involuntary Hunger Index, the Poverty Line, Headline vs Core Inflation or even the gross sales of the ballyhooed Marcos KADIWA stores. To the controversial, or perhaps the mythical, 31 million majority, as measures of resilience, most economic data would be largely meaningless.

As meaningless as the often-repeated mantra from the Department of Agriculture (DA) that the country need not worry about going hungry because we have adequate rice supplies despite its price per kilo doubling within weeks from the start of August. It is telling that before August ended, DA officials would backtrack and admit to a shortage. Unfortunately, the egg on their faces is inedible.

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Why lie in the first place? Disinformation rules at first and then painful reality suddenly explodes, and the pundits start a blame game. Like a rerun of Groundhog Day, the suffering teaches nothing and no one. 

As galunggong (round scad) was once a representative index of food inflation before a former official sold our fishing waters down the Yangtze, a kilo of rice, its supply, price, and its buffer stock are now popular and relatable measures of our economic resiliency.

Buffer management often employs a bit of econometrics and management science’s mathematical Monté Carlo simulation method to predict a range of outcomes for an uncertain event based on various courses of action. 

Not everybody at the DA is partying. Some bother to work and attend meetings. The buffer depletion and September’s astronomical prices were predictable. Over the din of party music, a 37-day buffer, sorely below the ideal 90 days previously set in 2022, should have sounded the loudest klaxons long before August 2023. 

Combining data from the Bureau of Customs, the Philippine Statistical Authority, and the DA, the latter was forewarned. The first semester bumper harvest and the lean months from July onwards hitting head on with the El Niño by the third quarter were factored in. This means that there were adequate warnings enough to forestall both a buffer shortage and the prohibitively astronomical rice prices we now suffer. Following those parameters, three September forecasts did not show any scenario with adequate buffers. Not one. 

The baseline assumed importations of 0.9 million metric tons (Mmt) and started off September with a buffer of 6.8 days – ironically coincident with the total announced at the start of August. Given importation lag times, a 6.8 days buffer is a virtual shortage since that assumed an importation to cover domestic production insufficiencies. 

Applying importations as a variable factor, ceteris paribus, supply shortages computed ranged from 1.2 days to 6.5 and 10.5 days. In no case was there any local production adequacy. According to the NFA, should we miscalculate even slightly on either the import volume or domestic production, then a shortage becomes a certainty even at the baseline. Thus, the earlier pronouncements that there was no shortage, whether actual or forecasted, was a lie.

What a mess! Not only can’t these characters manage their buffers, but they also can’t even manage a lie. – Rappler.com

Dean de la Paz is a former investment banker and managing director of a New Jersey-based power company operating in the Philippines. He is the chairman of the board of a renewable energy company and is a retired Business Policy, Finance, and Mathematics professor. He collects Godzilla figures and antique tin robots.

1 comment

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  1. ET

    Thanks to Dean De La Paz for the insights we gain through
    his article, “Brinkmanship and the mismanagement of
    our rice buffer.” The harsh reality is that the mythical
    31 Million “bobotantes” still believe in such lie even
    though there is lesser or costlier rice on their table now.

    Some of them have started eating rice substitutes, such as
    pan de sal, camote, banana, biscuits, cookies, etc.
    or forcefully going into any sort of fasting.
    And worse is that some of these “bobotantes” are still imagining that
    there is rice on their table even if it is “pan de sal” bread
    which is really on it. They just say: “Just use your imagination.”

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