How far up will local rice prices go?

A Bloomberg story datelined Bangkok gives us the good news about being able to expect cheaper rice in the coming months. Thailand is disposing of record stockpiles. Because Thailand is a major producer, world market price of rice is likely to slump further from an almost six-year low as a price war looms among top rice exporters Thailand, Vietnam and India.

But don’t get excited. If NFA runs true to form, we are exempted from this opportunity to enjoy cheap rice. We are the world’s major importer of rice and we should benefit from a price war among the major rice exporters. But that’s not going to happen.

Right now, we are suffering a major spiraling of rice prices from ordinary to fancy varieties. There was a time when a kilo of rice in a supermarket can be had for P35 or less. Last Saturday, the cheapest was at P44.

The rise in the price of rice may be seasonal, but that’s what NFA is for… release stock to the market when needed to tame prices. One gets the feeling that something is very wrong with the rather fast pace in the spiraling or rice prices in recent weeks.

One Facebook friend noticed the high price of rice and asked if P-Noy stopped the NFA subsidy. Of course that has not happened. NFA is still sucking billions upon billions of pesos in subsidy from the National Treasury, as always. So, anyari?

A source who tracks the local rice trade told me what seems to be happening: “the trade knows that the NFA rice cannot be released since it is spoiled. Supply and demand lang iyon. By NFA’s count, they have more than enough to influence retail prices but their inventory count assumes all are good stock. This may not be the case.”

That probably explains why NFA is in a hurry to import some 800,000 metric tons of rice that’s supposed to be just for buffer stock. The Philippines, Asia’s largest buyer after China and Indonesia, will hold a tender for 800,000 tons on April 15 with the first shipment expected in May.

If we buy now, we may be buying at the wrong time. My source told me his contact in Singapore and Thailand say rice prices are still high and to wait. As of now, there is no final decision on the disposal of Thai rice stocks. But it is certain the Thais want to dispose of as much rice as they can to raise money.

If we buy our entire requirement of 800,000 tons now, we may end up paying a lot more than if we waited a while. Prices are now at peak level and it makes no sense to lock up on today’s prices given that a price war is imminent. There is in fact, a world glut in rice already.

According to Bloomberg, the Thai government plans to sell about one million tons a month, compared with average monthly exports of 558,000 tons last year. Thailand is willing to agree to sales at any price, Vietnam’s Minister of Industry and Trade Vu Huy Hoang said April 1 in a television broadcast.

Darren Cooper, a senior economist at the London-based International Grains Council told Bloomberg, “We will see heightened competition in the market because Thailand is quite eager to release the stockpiles. Thai prices have been falling steadily for the past year. We have seen some acceleration in the past few weeks, when it became clearer that Thailand needs to offload stocks to generate funds.”

Cheaper rice should be good news for us. It will contribute to lower food costs, helping to dampen inflation. One reason why our labor costs are uncompetitive compared to Thailand and Vietnam is because of our higher food costs. Food (taken inside and outside the home) takes up about 45 per cent of a worker’s take home salary.

But will we benefit from this good development in the world rice market? Not, if NFA can help it. The usual shenanigans will make sure they get their tongpats and what-have-you at the expense of the long suffering consumers.

We can be sure that NFA and their conspirators among the rice traders have taken the market developments into consideration when NFA issued the tender offer for the 800,000 metric tons.

Of course they know that waiting means the price will drop… may be good for the consumers, but bad for their bank accounts. So bid it out now while the price is still high and peg it there, then renegotiate the future shipment. They can divide the difference between the high contract price now and the low actual price upon delivery. Everybody is happy except us, the consumers.

If it is just for buffer, why rush it? There is something NFA is not telling us about their rotten stock that they cannot release to temper today’s runaway price increases. They may actually need this fresh stock to protect P-Noy from a public backlash if this price spiral worsens.

Otherwise, there is no need to rush. The later, the better. There are plenty of stocks in Vietnam, Thailand and India. Shipping time is just two weeks for India, and a week for Vietnam and Thailand.

Merely buying option now is justified because the bumper crop in supplier countries suggests a nice drop in prices. Besides, our summer crop is coming in, my source pointed out, and the second crop is expected by the time we need it.

“Even with my IQ of 30, my feeling is to wait it out or buy option. At worse, I will just buy the immediate need. Hold the rest and play the suppliers,” my source commented.

Thailand accumulated rice reserves under a state-buying program that ended this year. Its stockpiles reached 12.8 million tons, or about a third of the global export market, last year, Bloomberg reports.

Thailand is short of funds to pay farmers under the now-ended program, as Prime Minister Yingluck Shinawatra faces negligence charges linked to it. The program paid farmers above-market rates for their crops supposedly to lift rural incomes. The farmers have rioted demanding to be paid immediately.

“We could see a price war, with Vietnam cutting prices, selling lower than Thai rates,” Chookiat Ophaswongse, honorary president of the Thai Rice Exporters Association, told Bloomberg. Thai grain is currently quoted at about $365 to $370 a ton, lower than $385 in Vietnam and $420 in India, according to Chookiat.

Vu Huy Hoang, Vietnam’s minister of Industry and Trade, also said this week Thailand was willing to sell the grain at any price. Vietnam’s shipments dropped about 20 percent to 1.2 million tons in the first quarter.

Oh well… they are likely to play their old nasty game at NFA but at least we are serving notice that the public is not totally clueless of what is going on. We also know what is going on in the international rice market.

We just want to make sure P-Noy knows as well and that he will hold NFA officials accountable if we end up getting screwed in that rice tender worth P17-B next week.

Given the certainty of a price war among Vietnam, Thailand and India in the next few weeks, it makes sense to be a little prudent. We should really keep our options open for such a large order.

In the past NFA’s tenders and buying decisions were blamed by international experts to have destabilized both the world and local markets. The nature of NFA’s international buying efforts, an expert pointed out, contributed to higher prices.

Rather than using a mix of smaller tenders and direct negotiations to secure its imports, the food authority held what were essentially ‘mega’ tenders of at least 500,000 tons, an international expert complained.

Hopefully, now that there is a chance for a drastic drop in prices, NFA officials are duty bound to make consumers benefit. After all, the current upsurge in local retail prices is their fault due to their failure to bring enough of their so called buffer stock to market.

If NFA fails big time again, the call for its abolition will snowball. NFA is proving to be a big and useless entity both to the farmers who need the price support for their produce and to the consumers who need stable and lower price of rice.

There are many things the ever patient Filipino people will forgive a government who bungles a dozen things or two that are “malayo sa bituka.” But bungle the price of rice and there will be political hell to pay.

Boo Chanco’s e-mail address is[email protected]. Follow him on Twitter @boochanco