Food shortages and price hikes

Anyone who regularly shops for food must have noticed the sharp increase in the prices of imported fruits, vegetables and meats. Prices have increased by as much as 35 percent in the last year, which is consistent with global price movements, according to the United Nation’s FAO Price Index.

The price hikes are due to food scarcity and this is caused by two reasons. The first is the COVID-induced disruption of food supply chains across the globe. The second is the shortage of freight containers which are presently cornered by China. Let me explain.

Since China was the first to recover from the pandemic, it was also the first to rev-up its export economy. China is the only major exporter able to produce at full capacity at this time. As a result, it has a pseudo monopoly on many product categories. The challenge for the Chinese is to ship their goods to export markets as fast as possible.

Chinese manufacturers have been paying a premium to shipping lines to have freight containers readily available for them so they can ship their products without delay. The premiums they pay are enormous. Normally, shipping cost to transport a 40-foot container from Shanghai to Los Angeles would cost about $4,600. The Chinese are now paying $12,000, sometimes more.

International shipping lines have found a lucrative cash-cow in outbound Chinese freight traffic. To take advantage of the sky-high shipping rates, shipping lines have been on a mad rush to deploy the lion’s share of their containers back to China even if they have to ship them back empty. In other words, freight companies are not willing to wait seven days (or more) to assign their container to an exporter, say in Los Angeles, where they can only realize about $5,000 per container. It is more profitable to ship the container back to China, empty, where it can be deployed immediately at a rate of $12,000 or more.

Bloomberg reports that three out of four containers that sail out of Los Angels for China today are empty. What is happening in Los Angeles is happening elsewhere too. Thus, most export economies, except China, are experiencing crippling shortages of freight containers, for which waiting times can last up to four weeks.

This means food exporters from Canada (wheat), the US (corn and soybeans), India (sugar), Thailand (rice), Argentina (beef) and the Philippines (coconuts) are left with massive amounts of agricultural products waiting to be deployed – a good amount of them inevitably rot. This affects food production chains across the globe leading to scarcity and price hikes.

Only China is able to ship their goods on time. It is not clear if the Chinese government has a hand in this. Suffice it to say that in the current scenario, China is the sole beneficiary.

The way to circumvent this is for governments to regulate the outbound traffic of containers from their respective ports. In the Philippines, the Maritime Industry Authority (MARINA) will do well by having shipping lines prioritize full containers over empty ones. In fact, MARINA can even impose a limit on the outbound shipment of empty containers.

I am finding it suspicious that in this global pandemic that originated in Wuhan, China has emerged as having the sole upper hand in trade, in foreign policy and even in its illegal territorial grab of the West Philippine Sea. While superpowers like Japan, the US and the EU have weakened due to the contagion, China has expanded its leverage. Coincidence? We will only know when we understand the real origins of the coronavirus (was it manufactured or did it develop organically?). Australia led the request for a scientific inquiry, for which China responded with an insolent refusal and trade retaliation.

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Last month, I wrote about an impending shortage of meat products in the Philippines due to the shortage of mechanically deboned meats (MDM).

MDMs (mostly chicken for the Philippines) comprise 70 percent of raw materials in the production of hot dogs, luncheon meats and other such products. Processed meats, in canned and frozen form, are considered basic commodities, thus, their prices are controlled by the DTI. This is why they are affordable and why it comprises the bulk of the diet of the poor and middle class.

Late last year, the Department of Agriculture (DA) imposed a ban on MDM imports originating from Germany, France, the Netherlands and the United Kingdom, among other European nations. The ban was raised due to an outbreak of the avian flu that swept the European poultry sector.

Since then, our meat processors have began channeling their orders to Brazil, Canada and the US. With no competition from Europe, prices of MDMs originating from the Americas have increased sharply. From a wholesale price of $500 per ton last year, it is now selling for $1,500 per ton.

At these prices, our meat processors will have no choice but to impose hefty price increases for canned and frozen meats. If such price increases are not approved by the DTI, it will make better sense for them to simply stop production. Both scenarios will hurt the consumer.

The DA, through its Bureau of Animal Industry, recently lifted the ban on MDM imports from the Netherlands. But it came with a proviso that the chickens from which the MDMs were made must be born and bred exclusively in the Netherlands. Unfortunately, this is of no utility since the EU operates as a single economic bloc with supply chains extending across borders.

There are three ways out of this. First, liberalize MDM importation from the UK. The UK’s department of environment, food and rural affairs (DEFRA) has confirmed that the avian influenza has been controlled with no new outbreaks since March. Second, allow MDM imports from Spain and France which are already “system accredited” (allowed to export to the Philippines) as soon as the avian flu is confirmed to be under control. Third, fast track the accreditation of MDM producers from Hungary since the country is avian flu-free.

The DA cannot be legalistic at a time when the country faces a food shortage. It needs to be flexible and willing to undertake solutions outside the norm. Time is ticking and a solution is needed quickly.

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Email: [email protected]. Follow him on Facebook @Andrew J. Masigan