Temporary crisis spurs higher food prices

The prolonged strife caused by the Russian invasion of Ukraine further deepens the tumultuous disruption of global supply chains, which was first upended by the pandemic. While our government officials tamp down on the impact to the country, labelling it as a “temporay crisis”, scandalously high pump prices of gasoline and diesel at local gas stations say otherwise.

Expensive fuel, however, is just one of the immediate and worrying impact resulting from the derailment, if not destruction, of the Ukranian economy and the massive financial and economic sanctions on Russia by Europe’s governments and the United States.

Less apparent, but which would likely be painfully felt by our economy in another four to six weeks, is the tightening supply of agricultural products and its potentially higher costs. The closure of the Black Sea routes is especially telling on the grains trade, especially with Russia and Ukraine being major producers of wheat, maize, barley, and oils and fats used in commercial food production.

The impact of these will be most felt throughout the food sector, from backyard poultry and pig raisers to carinderias and restaurants. Coffee, tea, baked products, and even meals prepared at home will feel the price pinch. Even those who have pets that depend on kibbles will not be spared.

Farmers will likewise find fertilizer prices going up as sanctions on Russian exports of ammonia, urea, processed phosphates, and potash hit hard on the US and India, which together with China and Brazil, consume 40 percent of Russia’s fertilizer ingredients. With a higher cost of fertilizer inputs in agriculture, expect prices of locally grown vegetables and fruits to eventually rise.

Keeping the calm

With the Ukraine-Russia crisis escalating, the economic team is keenly watching three things that would likely add pressure on inflation: fuel prices, a clamor for wage adjustments, and rising food costs. Understandably, the government is applying all the band-aid solutions it can muster to keep the calm.

Aside from the long list of interventions presented by the economic team to the President two weeks ago, fuel conservation initiatives are now also being pushed. The Palace has already authorized the immediate release of funds for fuel subsidies and vouchers to farmers, fishers, and jeepney drivers, and the cash dole-outs to disadvantaged families, all aimed at providing some measure of relief to individual Filipinos against high fuel prices.

To bring down prices of electricity, the seven percent tariff on coal purchased under the Most Favored Nation (MFN) terms will be slashed to zero until the yearend. Coal accounts for more than 50 percent of power generation in Luzon, where the center of industrial and commercial activities are located.

The subsidies are costing the state billions of pesos, and while these are still not enough to fully compensate for the daily loss of incomes caused by high fuel prices, they seem to be acceptable for now.

The wage boards have started hearings on petitions to raise wages, but like the petitions for fare increases, the government would rather opt for temporary solutions. Shortened workweeks without salary cuts or casual job generation are preferred, all of which are provisional in nature.

A combination of import liberalization, stockpiling, and substitution measures are expected to stave off prolonged inflation levels, as the disrupted sourcing of grains, fuel, and precious metals from Ukraine and Russia continue to affect global supply.

Importation measures

Securing stability in supply and pricing of food commodities is expected through interventions in the importation of rice, corn, poultry, livestock, and fertilizers. Some are extensions of measures introduced as a response to the pandemic, others are new.

Extended until end December this year are the 35 percent MFN tariff rates for rice imports, as well as the lower tariffs for pork meat and fish acquired from other countries. The MFN tariff on corn will be lowered to five percent in quota and 15 percent out of quota, with minimum access volumes (MAV) of four million metric tons until end year.

The change in corn tariffs is necessary because it is an important ingredient in feedstock, especially preferred in poultry and egg production. Corn farmers have protested the increase in MAV to four MMT from over 250,000 MT as exaggerated, but a cursory look at data from the Department of Agriculture’s National Corn Program shows the shortfall in local yellow corn supply at already close to four MMT.

Corn as inflation trigger

Yellow corn, unlike rice, is not really part of Filipinos’ everyday diet. Farmers plant yellow corn to supply the needs of the feeds industry. With delivered prices almost always matching the high prices of imported corn, it does not help ease inflation pressures.

Because most of imported corn is sourced outside ASEAN, which currently is included in the MFN listing, tariffs can go as high as 50 percent. Studies have indicated the significant effect of high tariffs on corn and subsequently on the market prices of chicken and pork.

An earlier paper showed that the average increase of P15 per kilogram of feed corn in 2020 to P22 per kg in September 2021 translated to an average increase of 15 percent to produce feeds and 11 percent to produce livestock. This is because corn tariffs are too high.

The proposal of the economic team to bring down corn tariffs only until the end of the year should be reconsidered and made longer, if not permanently. Let’s remove tariff barriers that burden our livestock and poultry growers, and ultimately, Filipino consumers – even when the Ukraine-Russian crisis is over.

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