ANALYSIS OF RICE PRICE TRENDS: Where are the Price Spikes Coming From? Isabelita M. Pabuayon and Agham C. Cuevas Professor and Dean, and Associate Professor, respectively, CEM-UPLB NAST Social Sciences Division Science Information Forum on Rice Sufficiency: Price Rise and Importation Issues held on November 26, 2014 at the La Breza Hotel, Quezon City

Presentation Outline Introduction Overview of the Rice Market – Philippines, World World Rice Price Trends Philippine Rice Price Trends Marketing-related Issues

Introduction Interrelated issues – rice self-sufficiency, food security and price stability Price stability – related to demand, supply and trade Domestic supply – local production + imports Domestic demand – food consumption and other uses Supply and demand lead to price formation Price affects consumers’ willingness to buy and producers’ willingness to produce and sell Food security is the bottom line – food is available, accessible and affordable to all at all times

The Philippine Rice Market 1) Consumers Rice staple food for 80% of 100 M Filipinos Comprises 20% of the poor’s consumption value Annual per capita consumption declined from 119 kg in 2008 - 2009 to 114 kg in 2012 Extremely poor (110 kg) < AB upper class (123 kg) Lower than other ASEAN countries, but higher than global average

Annual per capita consumption trending at 1 Annual per capita consumption trending at 1.67% / year, rising aggregate consumption, thus imports

Lower than other ASEAN countries, but higher than global average

The Philippine Rice Market 2) Producers Rice is major crop for 2.4 million Filipino farmers with average farm size of 1.14 hectares Net farm income PhP / ha / cropping season (BAS) Irrigated Non-irrigated All Farms Net income 24,680 15,750 21,910 Prod cost PhP / kg 11.15 11.78 11.29 Yield kg / ha 4,271 3,058 3,885 Price PhP / kg 16.93

The Philippine Rice Market 3) Intermediaries Market intermediaries consisting of traders at the farm, wholesale and retail levels Perform marketing services - transportation, storage, processing (milling), packaging, grading and standardization, wholesaling and retailing Incur marketing costs, entitled to normal returns from capital, labor, management and risk-taking Marketing costs + profit affects price level

The World Rice Market Global rice output - 476,557,000 MT Global rice trade - 41,169,000 MT - 8.64% of global output Top 10 producers Top 10 exporters Top 10 importers

Top 10 rice producers (85.59% share) Country Output (1000 MT) % Share China 142,530 29.91 India 106,540 22.36 Indonesia 36,000 7.55 Bangladesh 34,390 7.22 Vietnam 28,000 5.88 Thailand 20,460 4.29 Myanmar 11,957 2.51 Philippines 8th 11,858 2.49 Brazil 8,300 1.74 Japan 7,832 1.64

Top 10 rice exporters (92% share) Country Export (1000 MT) % Share India 10,000 24.29 Thailand 9,500 23.08 Vietnam 6,500 15.79 Pakistan 3,900 9.47 USA 3,100 7.53 Myanmar 1,300 3.16 Cambodia 1,000 2.43 Uruguay 930 2.26 Brazil 840 2.04 Egypt 800 1.94

Top 10 rice importers (42.08% share) Country Import (1000 MT) % Share China 3,500 8.50 Nigeria 3,000 7.29 Iran 1,650 4.01 Philippines 4th 1,450 3.52 Indonesia 1,400 3.40 Iraq EU 1,350 3.28 Saudi Arabia 1,325 3.22 Cote d’ Ivore 1,150 2.79 Malaysia

Philippine Rice Industry Performance

Philippine Rice Industry Performance 3.43 % / year 3.40% 5.11% 5.17%

Philippine Rice Industry Performance

World Price Trends 4.31% / year

World Price Trends

World Price Trends March – April 2008 > US$1,000 / MT

2007-2008 Rice Crisis (Factors) Price build-up prior to 2006 due to demand > supply: high income growth, increasing population, weather disturbances, dwindling stocks Rice price increase linked to increasing prices of wheat and corn, rising oil prices Government actions and ‘rational panic’ among key players, media reporting, official announcements by international organizations of price rise forecast – created uncertainties and market jitters (Dawe & Slayton 2010)

2007-2008 Rice Crisis (Factors) Export ban of India for non-Basmati rice on Oct 9, 2007, setting of minimum export prices, outright ban in April 2008 Export ban of Vietnam in early 2008 until June 2008 Large tenders made by the Philippines with Vietnam in March and April and agreement to pay higher than world prices MOU of Philippines with Thailand in May for more rice deliveries

2007-2008 Rice Crisis (Factors) Thailand’s announcement of export ban although did not materialize Thailand’s proposal to put up a rice exporter cartel (the Organization of Rice Exporting Countries or OREC that includes Vietnam, Cambodia and Myanmar) Announcement of Malaysia and Nigeria to stockpile although did not materialize Export suspension of Egypt until April 2009 and export ban of Cambodia and Brazil in April 2008 Delayed issuance of export quotas by China

World Price Trends Declining - 0.87% /month

Trends in Philippine Rice Prices Steady increase in domestic prices, 6.33% per year

Trends in Philippine Rice Prices Domestic prices (Pd) 50% higher than world prices (Pw) Pd constant or increasing while Pw falling

Stock levels and domestic prices Year Beg Stocks (1000 MT) Pr WMR (PhP/kg) Pr RMR (PhP/kg) 2010 3,137 34.34 30.84 2011 3,010 34.73 31.31 2012 2,212 35.30 32.08 2013 2,175 36.87 33.70 2014 1,994 42.02 38.76 Declining stocks, rising prices

Stock level and domestic price correlation Pr WMR Pr RMR NFA -0.6317 -0.6599 Commercial 0.0601 0.0680 Household -0.0298 -0.0304 Negative relationship between NFA stocks and retail prices of well-milled and regular milled rice

Prior to 2011, NFA stocks are greater than commercial Types of Rice Stocks Prior to 2011, NFA stocks are greater than commercial and household stocks

Steady increase in prices in 2013 sustained in 2014 Highest price PhP21.87 in June 2014

Highest price PhP38.61 in July 2014

Highest price PhP40.99 in July 2014

Highest price PhP40.59 in August 2014

Highest price PhP43.64 in September 2014

Marketing-Related Issues The study of Dawe et al (2006) that compared marketing margins in the Philippines and Thailand concluded that margins are higher in the Philippines and marketing costs explain one-fourth of the difference. Marketing cost is higher because of 1. road quality which increases transport costs 2. seasonality and lack of openness to trade, making storage time longer 3. inefficient financial services, which increase the cost of money.

Marketing-Related Issues The other three-fourths of the difference may be explained by too many marketing agents Consistent with the large numbers of business entities licensed by the National Food Authority (NFA) to do business in rice No evidence of collusion was found from farm to wholesale and at the retail level Collusion at the wholesale level could not be proved or ruled out due to inadequate data

Thank you very much.