Over-reaction

It’s like grabbing a sledgehammer to attack the tip of the iceberg.

La Union representative Thomas Dumpit filed a resolution calling for the grant of emergency powers to the President so that the rice crisis could be dealt with as a calamity. The resolution might be well-intentioned. But not well-informed.

As I mentioned in a previous column, what we are presently facing is not a rice crisis but a price crisis. It is a crisis that is not only afflicting us. It is a global problem.

Although the weapons we have so far relied on in dealing with the problem at hand have been largely drawn from the armory of law enforcement, the matter will have to be dealt with in the long run with the far more efficient weapons of economics.

We could go through a long list of reasons explaining why food prices are rising fast here as everywhere else. There are immediate factors such as weather-related disturbances in China and pests ruining part of the crop in Vietnam. There are longer-term trends too, such as the increased consumption of the dense populations of China and India brought about by rising prosperity as well as, some experts claim, the diversion of corn crops in the US to ethanol production leading to rising demand for other grains such as rice.

Although land devoted to agriculture might have been decreasing, rice production has been rising — although not fast enough to keep pace with rising consumption induced by prosperity.

With rising domestic demand, traditional rice exporters such as China, India and Thailand have been cutting back on their exports. That hits rice consuming economies that produce less than what they consume, particularly Indonesia and the Philippines. Our two countries, it must be noted, as archipelagos. That means that with only small rivers, irrigation will be costly and that pushes up the cost of rice production.

If better water-endowed mainland countries like Burma, Cambodia and Laos could be encouraged to produce more rice for export, our collective buffer stocks will be boosted. But that will take time.

It will also be cheaper to produce rice in Burma, Laos and Cambodia since they are endowed with great rivers flowing all year-round from the Himalayas. It will be much more expensive to boost production in Indonesia, Japan and the Philippines. Being archipelagic economies, we need to pump water out of aquifers and rely on fertilizer-dependent hybrid varieties. It will also cost more to transport rice from small island to the main markets. There is also less land available in the archipelagic countries to devote to agriculture.

About 68 million Filipinos are earning $2 per day. For them, the larger portion of their incomes go to food purchases. Any significant movement in the food price regime will have immediate and dramatic effects on their quality of life.

The price crisis, therefore, quickly translates into a crisis of access to affordable food. Especially rice.

Indonesians and Filipinos have been rather profligate in our rice consumption. Unlike neighboring mainland economies where rice in transformed into noodles for better storage and transport, we prefer our rice freshly steamed all the time. It is an energy-intensive, time-consuming food culture.

We are not only economically vulnerable to the food crunch. We are also culturally vulnerable.

We can debate no end on whether it is wise for us to even think of being rice sufficient. That will mean devoting scarce land to rice production that might otherwise be more productively used for housing, industry and commerce. That will also mean further straining our fresh water supplies.

But the immediate problem at hand is to avert price inaccessibility for our poorest households.

This is the consideration that has forced government to allow about P20 billion in rice subsidies to the poorest Filipinos. Those subsidies explain the wide gap between the price of NFA rice and the cheapest commercially available rice varieties.

There is no supply problem in the case of commercial rice varieties. For those who could afford fragrant rice at P60 a kilo, there is no palpable crisis at all.

But there is a crisis for those who could only afford rice at P18.25 per kilo. And it is in these income segments that rice lines are forming and where the phenomenon of “family hoarders” is appearing.

Spooked by the price gap between subsidized and commercial varieties of rice, poor families avail of NFA supplies whenever and wherever they are available. That puts pressure on NFA rice stocks.

The large price gap between NFA and commercial rice varieties also encourages syndicates to buy cheap subsidized rice and repackage the commodity for sale at commercial prices. There are large market incentives for doing so. And on this aspect, government has no choice but to respond with the instruments of law enforcement.

I don’t think it will be possible for government to subsidize large amounts of rice indefinitely. That will open a gaping hole in our public finances.

But neither can government allow serious price inaccessibility to happen. That will create panic.

A delicate balancing act will have to be performed, ensuring rice supply to prevent the outbreak of panic buying and artificial shortages and a market-sensitive price mechanism to work its way eventually. This does not require emergency powers. But in the near-term it will require the involvement of agencies like the NBI to prosecute repackaging syndicates, hoarders and all the felons produced by the large price variances that every subsidy creates.