Rice crisis to push inflation up to 8% in Philippines

"In the Philippines, the CPI (Consumer Price Index) rice component is more closely related to available daily price data for Manila--which suggests CPI inflation rates close to 8 percent in coming months," UBS said, adding that the headline inflation for the Philippines is likely to exceed 6 percent on average for the year 2008.

In the Southeast Asia, the Philippines has the highest food share in its consumption basket, pegged at 50.03 out of 100 price index basket weights, the report says.

UPS said the CPI inflation is expected to take a steep rise as the government cannot dictate the commercial retail rice price.

As one of the world's top rice importers, the Philippines expected to buy not less than 2.2 million metric tons of foreign rice in 2008. It has purchased about 1.2 million metric tons so far but failed to secure another 500,000 metric tons for April-June delivery on a Thursday's bidding.

Only 325,750 metric tons of rice were offered at prices ranging from 872.5 U.S. dollars to 1,220 U.S. dollars per metric ton, more than double the price at this January's bidding.

To ensure rice remains affordable to almost 3 million poverty-stricken Filipinos, the government has invested a swelling amount to keep the subsidized rice be sold at an unchanged price of 18.25pesos per kilogram (0.45 U.S. dollars). Commercial rice sold at free market have seen prices rising up to around 40 pesos (0.97 U.S. dollars per kilogram.

UBS said the cost for the Philippine government to buy higher prices of foreign rice and insist selling it at lower prices domestically would potentially cost not less than 43 billion pesos(1.05 billion U.S. dollars), or 0.6 percent of the GDP (Gross Domestic Products) for this year.


The effects on trade


So many countries of the developing world import a large percentage of the foodstuffs necessary to feed their populations. Rising prices means problems grow quickly. Even for food exporters, rising prices has touched a nerve. In Korea, one of the world’s most prolific rice producers, a Netizen argues that rice should be withheld from free trade talks, allowing the country to do as it seems fit with its strategic commodity.


Sometimes protectionism won’t be enough, however. As the price of rice has increased throughout Southeast Asia’s rice growing nations, governments were forced to plea for calm and pray that domestic prices would soon begin to fall. The situation is doubly bad for rice importers like the Philippines, where the poor have felt the brunt of the price increase. Indonesia, another importer, has canceled its imports due to high prices. Cambodia and Vietnam have abandoned exports. Bloggers in Malaysia report rumors of rice shortages. The Government of Brunei could move to subsidize food staples like cooking oil, flour, milk, eggs and chicken.


For decades food prices in Japan have been in stasis, which is strange for a country that imports almost every staple other than rice. Not any longer. Price increased for the first time in more than two decades. The same goes for milk products, which consumers been paying for at the same rate for three decades. Beer, cooking oil, and soy sauce also experienced increases.


A silent killer


In Bangladesh, where people spend as much as 80% of their salaries on food, high prices for rice have hit the middle class. It’s much worse for the poor, as media reports confirm several hunger deaths. The country’s military chief raised the ire of many when he suggested people replace rice by eating potatoes.


In Tajikistan, where people already faced a winter-long energy shortage, it looks like more than 260,000 people are in need of immediate food assistance. Worries persist that this number could grow to 2 million by winter.


Talk about globalization. In Yemen, the prices of staples have risenwhile the cost of certain electronic goods have dropped. Kuwait has also seen price increases, no thanks to the falling U.S. dollar.


In Burkina Faso, where people felt the government sat on its hands as prices in some sectors increased more than 40% since the beginning of the year, riots sparked in several cities throughout the country in late February, resulting in plenty of property damage and more than 300 arrests.


At about the same time in Cameroon, anger over rising prices and falling wages sparked three days of violent confrontation with the military. Anger was also fed by President Paul Biya's attempt to change the constitution so he could sit for a third term.