Smuggling’s domino effect

John Berthelsen connects the dots in Rice Smuggling Threatens Indonesia, Philippines:

The Philippines’ massive purchases of rice at sharply increased prices from its neighbors are creating a fast-buck opportunity for traders in Indonesia, where prices are controlled, to smuggle the commodity out through Singapore for eventual sale in the Philippines.

Rice in government-controlled storage in Indonesia sells for US$436.80 per tonne at a time when the Philippine government and rice traders are offering up to US$1,000 per tonne in Vietnam and Thailand. The skyrocketing rice price and the attendant smuggling opportunities are generating political concerns in both countries, with Indonesian President Susilo Bambang Yudhoyono last week ordering government officials to prevent rice smuggling to other countries.

A top political source in Jakarta last week said the government is increasingly worried that rising rice prices and potential shortages could cause political unrest. “This is rice, and that means trouble if it goes wrong,” said the source. Yudhoyono has also sent a letter to United Nations Secretary General Ban Ki-moon urging him to take measures to ease speculation in commodity markets.

Meanwhile, in Manila, Senator Loren Legarda earlier warned of the possibility of social unrest and political instability for Philippine President Gloria Macapagal Arroyo’s already shaky government, which has endured a continuing series of coup attempts and impeachment moves fuelled by corruption scandals. Both countries are facing rising deficits on the amount of funds they must pour into adjusting subsidies to control rice prices. The Philippine National Food Authority said it could post a loss of as much as US$1 billion for 2008, compared to a US$762.1 million deficit last year.

Here’s another interesting thing in the same article:

… it is debatable how real the global rice shortage actually is. Much of it is due to a complex set of factors, including hoarding, speculation and decisions by some rice-exporting nations, notably Vietnam and India, both of which have announced different forms of export restrictions to protect domestic consumers. On Monday, Thai exporters said they wouldn’t participate in a Philippine rice tender next week because Manila said it wouldn’t guarantee contracts. Exporters appear to be holding onto stocks at a time when importers like the Philippines are desperate to bolster their stocks. Hoarding — including by growers and traders in the Philippines itself — has added to the problems.

The article concludes with praise for our farmers but concludes that population growth is the ultimate problem:

But according to an IRRI spokesman, the Philippines doesn’t do that bad a job growing rice. Productivity is quite high, the spokesman said, with Filipino farmers producing 3.4 tonnes of rice per hectare as against Thai farmers, who produce only 2.4 tonnes per hectare. And the quality is high.

“Although it is not widely known, Filipino farmers receive a much higher price for their palay (unhusked rice at harvest) than do farmers in neighboring countries,” according to the book, “Why does the Philippines Import Rice?” published by IRRI. By and large, they live in better houses, and are more likely to have electricity, running water and hygienic toilets than other farmers. They hire the majority of labor that works their farms, spending about 18 days a year per person at the fundamental task of growing rice.

The Philippines’ problem boils down to land and people, the IRRI spokesman says. They have too little of the former and too many of the latter. The Philippines is an archipelagic nation of 7,105 islands, few of them with estuarine areas ideal for growing rice. As in much of Asia, the possibility of increasing planting areas is nearly exhausted. Yield increases have begun to slow as well. Added to that, the Philippines population is perhaps the fastest growing in the region and one of the fastest growing in the world.

In Global Food Crisis and Corporate Titans, Alice Poon looksat the debate scientists are having on the causes of the rice shortage:

…the most proximate reason for the skewed rice supply is that a nasty epidemic of disease and pests has struck Vietnam, which is called the “rice bowl” of Southeast Asia as it is the world’s third largest rice exporter. The general global jump in food prices, though, is mainly attributed to the skyrocketing oil prices.

But is there a more deeply-embedded reason for the yield shortfall of rice, a food staple for half the world’s population, or of any other food crops for that matter? For Devlin Kuyek, author of the new book titled “Good Crop/Bad Crop: Seed Politics and the Future of Food in Canada”, there certainly is.

Kuyek told Roslin that the rice crisis is just an example of the food-related calamities that we can expect in growing numbers due to a combination of “crop monocultures” and global warming.

Kuyek went on to explain that Vietnam was one of the major recipient nations of the 1960s monoculture craze under the guise of the U.S.-sponsored “Green Revolution”.

“The Green Revolution provoked a sea change in centuries-old farming practices worldwide. It meant dropping millenniums-old farming practices of planting diverse fields of frequently rotated, native-adapted crops that evolved as local soil and environmental conditions changed. Those methods based on diversified seed varieties and varied crops were developed during the earliest days of human farming in order to prevent plant diseases, pest infestations, and soil degradation. Now governments would subsidize farmers to grow vast tracts of single crops from uniformly produced seeds.”

As the lab-produced new monocrops are poorly adapted to local conditions, they need vast amounts of water, fertilizers and pesticides for their sustenance. It leads one to wonder whether it is pure coincidence that the world’s largest seed companies like Monsanto, Syngenta and Dupont are also chemical manufacturers. Today, half a dozen large seed companies control the bulk of the $30 billion U.S. annual seed business world-wide and their aim is to maximize yield, rather than nutrient values.

But contrary to what the Green Revolution set out to achieve, i.e. maximizing yield, crop yields have been declining at an alarming rate, with tremendous loss of biodiversity being a by-product. Apart from a big jump in crop diseases brought on by crop monoculture, monocrops also deplete soil of key nutrients, thus reducing soil productivity 18 times faster than the normal farming method can rebuild it on average in the U.S., according to John Jeavons, a California-based author and farming researcher.

These concerns can be seen playing out in here:

Seeds, the high end variety that is, I am told have been suspiciously missing since there are tons of Gloria’s “hybrid”  variety rotting away in some NFA warehouse government is pushing Central Luzon farmers into buying. The natural course is that the regular seeds will demand higher prices OR they buy the cheaper but riskier hybrid which, when attacked by virus, kills wide tracts of palay-planted farms in a matter of days.

Next, irrigation. Farmers have been complaining about the cost of electricity used to pump water into their fields. At P9,000 per hectare, this amount reflects very high energy cost per hectare compared to our neighboring countries. Fuel price increases is one of the culprits here. Another is the incompetence of Napocor in managing its assets that is pushing maintenance costs sky-high thus, more expensive power.

We go now to fertilizers. Sulfur and pyrite (fool’s gold) are abundant but unmined. Sulfur mining in particular has been somewhat restrained after 9/11 since large volumes of sulfuric acid may be considered WMD. We have huge stocks of Nitrogen, Phosphate and Potassium. Especially phosphate, since we have the whole phosphate rock-island Republic of Nauru supplying us with the raw materials should our own resources get depleted. Hey, we have even convinced them to relocate in that building at the corner of Buendia and Makati Ave. should the 5,000-man island-nation sink down the Pacific due to over-quarrying. We have Joe Concepcion, as Cory’s Trade Secretary, to thank for (for once) for securing our phosphate supply for at least half a century. I don’t understand why we have a shortage in urea, though. Putting plastic containers in Bayani Fernando’s disgusting pink urinals all over the Metro would be enough to gather urea raw materials. I think.

Post-harvest. The same effects that the high cost of energy have on the service charge of paddy hullers, dryers, separators and polishers. I won’t be surprised farmers would go back to the primitive bilad-bayo-tahip method just to make a modest return. We can also include here the cost of renting hand-tractors or even just the cost of maintaining one, if they own it. Or cheaper still, get a carabao!

Ditto for transporting the crops.

What this all sums up to is a gi-mongous cost increase in rice production amidst a steady NFA buying price of P14.00.

The farmers won’t survive in this situation. I’ve just been to Subic the last weekend and judging by what I saw all throughout Bataan, Zambales, Pampanga and Bulacan, the farmers are in no hurry to prepare the soil for the May planting season. They’d probably wait for the rains before plowing and harrowing to save on tractor rental and irrigation cost.

Wow! We’ve just been teleported back to the 19th century!
[From Small Farmers Won’t Be Planting Rice Soon]

So did the President throw money at the problem, allowing the Law of Unintended Consequences to run riot?

Meanwhile, Jed Yoong says Psst, Malaysia’s Got a New Rice Bowl. If Marcos were still alive, he’d probably want to rehatch his plan to conquer Sabah! Will GreenPeace dare send environmental activists to disrupt the clearing of forests?

Limbang district, which is situated between two parts of Brunei on the island of Borneo, appears destined to become the site of Malaysia’s newest gigantic project. This is an area ceded by Brunei to the famed White Raja, James Brooke, and even today the sultanate would like to wrest back the fertile estuary and the rainforest which lie upriver. More recently, Limbang came under the international media spotlight when indigenous nomads protested against logging companies in the late 1990s.

Malaysia, however, has identified the river estuary as one of the sites for large scale rice cultivation as part of an ambitious RM4 billion project to turn the rainforest-covered state of Sarawak into a new “rice bowl” to make Malaysia self-sufficient in face of the global food crisis. What it mainly has done is raise concerns among environmentalists and NGOs that it will generate another land grab on Borneo on the magnitude of the Bakun Dam.

Details are sketchy and the plan seems to have been pushed through with little forethought. Land Development Minister James Masing, the Sarawakian politician who was in charge of resettling native tribesmen from the site of the Bakun Dam, reportedly said that parts of Sarawak’s 5 million hectares have been identified for rice cultivation, mostly in the central coastal areas and river deltas in the north. The area identified for cultivation is close to half of Sarawak’s total land mass of about 124,450 square km.

Manuel L. Quezon III.

58 thoughts on “Smuggling’s domino effect

  1. hvrds,

    On a positive note, our stirring up the whole rice-producing community of nations could also be viewed as encouraging rice exporting countries to ensure availability for the whole world and those non-exporters to secure their own supplies while we, the shrewd Pinoys, are converting our ricelands to biofuel crops without need to worry about producing all our grain requirements. In the same stroke, we are also limiting the expansion of our future biofuel competitors’ plantations.

    Although the risks are great, I’m sure this is a valid explanation why our government acts this way. Of course, importing billions of dollars worth of the grain opens more opportunities for bigger tong-pats, too.

  2. TonGuE-tWisTeD,

    “I can only speculate that the traders are jumpstarting the price surge and keeping their stocks long enough until the market prices zoom past the 60% rate increase in input costs.”

    you are right on your speculation,please read my comment on “April 30th, 2008 at 11:06 pm ” smuggling.

  3. The Inquirer article that TonGuE-tWisTeD pointed to will put the yearly income of a farmer who owns his own land to be P60K to plus-P110K a year.

    The report says Mang Piring “…sets aside 15 cavans for home consumption and emergency needs. Mang Piring sold the remaining 71 cavans at P800 each–the previous buying price was P500–and he had a gross income of P56,800.

    Still, he had to consider his expenses: e.g. For land preparation, P3,500; pulling, bundling and distribution of seedlings, P2,500… etcetera.

    Mang Piring’s total expenses reached P21,370, leaving him with a net income of P35,430.”

    Actually, Mang Piring’s net income should be increased by the 15 cavans he has set aside, or by P12K, which puts his net income to P57K. With 2 plantings a year, his net income is P114K. Making “singit” a 3rd planting raises his income to over P140K a year.

  4. Up N Student,

    mang Piring is a good example. let’s assume the worst calculation because of competition. Mang Piring will lose most of his net profit but will keep his employment and family from being hungry. He will be in a break-even position which will motivate him and encourage him to think how to compete, be resourceful and make even more.

    It takes opportunity and challenge for an individual to be successful. A continuing education and seminars must be provided to the farmers to become updated of supply and demand, new innovation

    A new opportunity for an entrepreneur to create a proposal to our current administration. A license provider of seminars and continuing education not only to the farmers but to all government sectors. An entrepreneur can charge a fee to attendees and the government will impose a policy that at least 24 hours of CEU’s must be required every two years or 8 hours every year.

  5. That seems to me, is the focus of Gloria’s present anti-poverty program – make the farmers earn more, ensuring that a great chunk of the population almost doubles its income. From P10 per kg of palay, she has instructed NFA to raise it and continue buying at P17 – forcing the traders/millers to buy at the same price. The year-end economic stats will reflect that huge jump in rural income, of course.

    It looks good…initially. But it cannot be sustained, the traders will lose out in the end resulting to closure of mills and ending in bigger unemployment.

    Why? Because at P17, which will reach up to P35 once it hits the markets, majority of the consumers will still be buying the cheaper NFA variety at P18.50 (which gov’t now imports at P40)leaving the traders, distributors and vendors with lots of stocks with no buyers. They will have to dispose of their inventories at a loss, that’s for sure.

    The government is simply spending billions to make good-loking figures – but only for 2008.

    Should it choose to continue the same for 2009, the treasury will sink further in debt. Ditto for infrastructure spending that will be used for “food security” – the next milking cow opportunity similar to what we saw prior to 2004.

    Household income figures, of course, will mean lots of pogi points come 2010 elections.

  6. Imagine, rice farmers’ 45%-65% returns over a period of 4-5 months. I’d dare any successful fund manager commit the same profit to his investors!

    But remember it is government itself that says, “If it’s too good to be true, it must be a scam.”

    A scam it is.

  7. “Household income figures, of course, will mean lots of pogi points come 2010 elections.”

    pogi points for whom?

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