And now… a food shortage

THE CORNER ORACLE - Andrew J. Masigan - The Philippine Star

In this time of incredible hardship when nearly a tenth of our workforce is out of a job and one out of every 5.5 of our countrymen is living below the poverty line, the last thing we need is a food shortage.

Unlike most western societies, Filipinos derive their protein not from milk and soy but from meats and fish. Processed meats like hotdogs, sausages, luncheon meats and the like are the most affordable and accessible meats to Filipinos. We consume more hotdogs, on a per capita basis, than the Americans themselves.

Processed meats, in canned and frozen form, are considered basic commodities. Hence, their prices are controlled by the Department of Trade and Industry through suggested retail prices and price caps. This is why they are affordable and why it comprises the bulk of the diet of the poor and middle class.

The primary raw material of processed meats is called mechanically deboned meats (MDM). As the name suggest, MDMs are made of chicken meat, pork meat or beef which are close to the bone and removed mechanically. Europe and America produce large amounts of MDMs since the bulk of meats sold in these markets are choice cuts and filleted (hence, they have large supplies of bones with residual meat). Most hotdogs and luncheon meats contain up to 70 percent MDM.

The Philippines does not manufacture its own MDMs since our farm output of chicken, pork and beef is not even enough to meet local demand. We also customarily consume our meats bone-in. Hence, meat processors like RFM, Foodsphere and Century Pacific Foods import 100 percent of their MDMs needs. The European Union supplies 60 percent of our MDM requirements for which   42 percent come from the Netherlands, 16 percent from Germany and 3 percent from the United Kingdom.

Last October, an outbreak of the avian flu hit select poultry farms in Europe. The Netherlands, Germany and the United Kingdom were affected, along with France, Denmark, Sweden, Poland, Croatia and the Ukraine

When viral outbreaks like this occur, the standard procedure, as prescribed by the Organisation Mondial de Santé Animale (OIE) or the World Organization for Animal Health, is to ban suppliers from within a one-, three- or seven-kilometer radius from the infected animal farm, depending on the severity of the viral spread. This has happened many times before, so it is nothing new.

But what the Philippine Bureau of Animal Industry did proved to be catastrophic.

Instead of identifying the animal farms that were struck by the flu and banning suppliers from up to a seven-kilometer radius, it decided to ban all suppliers from the entire country, including the Netherlands, Germany and the United Kingdom. In one fell swoop, it blocked the supply chain of nearly two-thirds of the country’s MDM source, causing a domino-effect of consequences. If not mitigated immediately, this will lead to a food shortage.

The decision of the Bureau of Animal Industry was ratified by Agriculture Secretary William Dar and this surprised many. Secretary Dar is among the more sensible members of the Cabinet and it is not like him to ratify such a heavy-handed measure. Banning suppliers from entire countries is like using a nuclear bomb to level an ant hill.

Many speculate that the decision is politically motivated. Could the underlying reason be the protest of the EU against Mr. Duterte’s human rights record? We will probably never know. Suffice it to say that we face a food shortage because of this rash decision.

Since our meat processors are presently unable to import from the Netherlands, Germany and the United Kingdom, they have begun channeling their orders to Brazil, Canada and the United States. As the law of price elasticity goes, the higher the demand, the higher prices go. Hence, suppliers from the Americas have doubled their prices from $700 per metric ton last year to $1,500 today.

The pressure on our meat processors was tolerable in the first quarter of the year since they were still using inventories acquired before the ban was imposed. But now that old inventories are depleted, they have no choice but to purchase MDMs at double the price. This has brought them to an existential crisis. With rising cost of MDMs on one hand and DTI price controls on the other, profit margins are squeezed to a point where many meat processors are now operating at a loss. It makes better sense for them to simply put a halt on production if only to stop the hemorrhage.

Exacerbating matters is that Brazil, which supplies 24 percent of our MDM requirements, has curtailed production due to COVID. Without Europe as a source, MDMs are arriving in trickles and meat processors expect to run out of this vital raw material within 60 days. We will feel a food shortage beginning June.

As it stands today, our meat processors can only fulfil 60 percent to 70 percent of orders from supermarkets, groceries and wet markets. In the weeks to come, canned goods and frozen meats will become increasingly scarce if this issue is not addressed.

There are three ways out of this. First, the Department of Trade and Industry must relax its price controls on processed meats, or increase the price caps by between 10 percent to 20 percent, at least for the meantime. This will allow our meat processors to continue production without amassing losses.

Second, like it did in 2017, the Bureau of Animal Industry should allow meat processors to import from animal farms outside the flu-zones in the Netherlands, Germany and the UK, but subject MDMs imported from these countries to a thermal process of disinfection before they are used. (Viral loads die when exposed to 74 degrees Celsius for one minute or more.)

Third, retract the heavy-handed ban on whole countries and isolate them to the flu-zone only, as is the global practice.

As if the COVID menace has not caused enough suffering for our people, a food shortage will surely bring them to their knees. Let us hope the Department of Agriculture corrects this self-inflicted mess.

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Email: andrew_rs6@yahoo.com. Follow him on Facebook @Andrew J. Masigan

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