Manila aims to halt rice imports in three years

The Philippines is mounting an ambitious bid to achieve self-sufficiency in rice within three years as a policy of relying on imports to cover production shortfalls unravels amid tightening global supply and soaring world prices.

The government is hoping the Philippines, the world's biggest rice importer, will be able to halt imports by 2010 thanks to a spending spree on irrigation and farm support aimed at boosting production.

The country's 2m rice farmers produced only 90 per cent of its requirements during the past seven years, necessitating imports averaging 1.2m tonnes a year.

The Philippines "has realised now it has no other option. Grain prices, like oil, will continue to go up because production cost has also been increasing," says Jesus Paras, undersecretary for agriculture.

President Gloria Macapagal Arroyo last week ordered a big increase in spending to boost rice production, allocating more than 40bn pesos ($959m, €606m, £482m) a year for construction and repair of irrigation systems, building of farm-to-market roads, distribution of special seeds and additional state lending to farmers.

The goal, says Rex Estoperez, spokesman for the National Food Authority (NFA), is to "rapidly" increase the country's rice output. "With the expansion in irrigation systems, rice farmers who previously managed only 1.5 to two harvests a year can have 2.5 to three croppings," he says.

That may be optimistic, says Trinidad Domingo, who grows rice on a two-hectare farm in Nueva Ecija, a province that supplies most of the rice for Manila. Most rice farmers in the Philippines are too poor to be able to invest in the fertiliser needed to achieve two to three annual harvests, she says, and "many are indebted to traders who seize the harvest even before the grains are completely dried".

Economists also worry that the big push to produce enough rice may prove both costly and unsustainable because most of the money will go to subsidise credit, seeds and fertilisers.

The Philippines has in the past had short bouts of rice self-sufficiency followed by extended periods of shortfalls after government subsidies for farm inputs stop, says Arsenio Balisacan, editor of a 2006 book on rice policy published by the Southeast Asian Research Center on Agriculture. He says the government should be focusing on improving productivity and making rice affordable rather than simply boosting production. "There were years when the Philippines was selfsufficient in rice but poor people were still going hungry because they could not afford it," Mr Balisacan says.

The Philippines has been buying rice from Vietnam, Thailand, Pakistan, China, the US and others to make up for production shortfalls and build reserves. Annual imports have more than doubled since the 1990s to an average of 1.8m tonnes in the past three years, according to the Department of Agriculture. Apart from boosting supply, rice imports have helped to stabilise domestic prices, as imported rice sells for less than locally produced varieties.

But the strategy has backfired as rice producing countries have imposed export restrictions to secure their domestic supplies after stocks fell to their lowest in decades and prices surged to record highs because of soaring demand and output declines.

Manila failed to attract enough bids in three tenders from December to March, receiving offers for only for half the 2.4m tonnes of rice it wants to import this year. It has seen average prices rise by more than 40 per cent from January to over $700 per tonne in the most recent auction in March.

In a report released yesterday Credit Suisse warned the Philippines could lose $1.3bn this year by importing rice and selling it on at a subsidised rate.

A fear of shortages has caused domestic rice prices to soar by about a third this year, a politically risky proposition for Mrs Macapagal, whose popularity ratings have fallen to record lows amid allegations of corruption and poll fraud.

Her response had been to order more imports and the distribution of more subsidised rice. She raised the NFA's target for foreign purchases this year from 1.6m tonnes to 2.4m tonnes, more than twice the projected production-demand gap of 930,000 tonnes. That has contributed to the higher world price of rice. Between 2001 and 2007, Manila imported on average just a quarter more than the estimated shortfall.

Leocadio Sebastian, executive director of the Philippine Rice Research Institute, says the increased spending plan could boost annual production by 5 per cent in each of the next three years, the minimum needed to attain self-sufficiency by 2010. Output of rice since 2001 has grown by only 3.6 per cent while demand rose by 4.5 per cent. But Mr Sebastian also has history in mind. "The government tends to abandon the goal of rice self-sufficiency, once global rice prices fall below local prices," he says.

Erroneous World Bank conclusion raises the question of trust

Less than a year ago, the authors of a World Bank paper on agricultural spending in the Philippines posed a question that now looks prescient: "Can the world market for rice be trusted?"

Yes, was their unequivocal answer. And so the authors urged Filipinos not to worry too much about their reliance on rice imports.

Other countries, such as those in west Africa, where rice is also a staple, received a similar message, which led to a dramatic expansion of the international rice market. It increased from about 10m tonnes in the early 1990s to about 30m tonnes last year, according to estimates by the US department of agriculture.

What seemed like a perfectly plausible answer then appears much less so now amid tighter global rice supply, soaring prices and rising food protectionism in exporting countries.

Leocadio Sebastian, executive director of the government-run Philippine Rice Research Institute, said recent events had shown that the reasoning behind the World Bank's recommendation "may not be true any more".

The World Bank study argued that rice production and prices were now more stable and that governments in rice exporting countries could not easily restrict foreign sales.

But Vietnam, Thailand, India and others have since imposed various measures to limit exports to secure supply for the domestic market.

Soaring global rice prices and tighter supply owing to surging demand and export restrictions "only prove the unpredictability of the world market for rice", said Mr Sebastian. "Rice is not a mere economic commodity. It is affected by political activities."

For African and Middle East countries, which rely on the global market for nearly half of their rice procurement, the prospect of continuing to depend on international supplies has become less attractive.

Editorial Comment, Page 10 Commodities, Page 27