POSTSCRIPT / July 14, 2009 / Tuesday


Philippine STAR Columnist

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Yap: Market data belie overprice of rice import

FALSE REPORT: The lean season for rice (July to September) has set in, and with it a heightened interest in the cereal and its retail price.

As expectedly as rain falling these wet days, a wire story has seen print that the Department of Agriculture imported 1.5 million metric tons of rice from Vietnam at an overprice.

And just as expectedly, some politicians with presidential pretensions have cranked out press releases demanding the usual congressional investigation.

Calling up Agriculture Secretary Arthur Yap to ask about the supposed price padding, however, this rice-eater had to swallow a number of apparently false news reports.

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BEST OFFER: The story written by Reuter had it that the government bought the rice at almost $550 per metric ton when the average market price at that time (last December) was only $380.

The report looked skewed. The rice committee of the Board of Trade of Thailand, which is the industry reference on global rice prices, had pegged the freight on board (FOB) price at between $456 and $459 in December.

That FOB price does not include the transport costs and other standard expenses needed to get the goods shipped from the exporting to the importing country.

At the time Manila and Hanoi signed the deal seven months ago, there was no such commodity as $380-per-ton rice being exported by any rice-producing country.

No wonder, Yap said he was ready to testify in any congressional hearing to explain why the Vietnamese rice was the cheapest and best possible offer at that time.

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10% SHORTFALL: Yap recalled that in his media interviews last December, when world rice prices were relatively low, he already said that it was the best time to negotiate a government-to-government deal with Vietnam.

The prevailing rate in December ranged from $456 to $459 per ton FOB, he said.

Manila and Hanoi had sealed the deal at $549.50, which includes such add-ons as freight costs, bid and performance bonds, surveyor’s fees, and the cost of money arising from the government’s paying on a deferred, credit basis of six to eight months.

Yap said that price consists of $645.50 for 5-percent broken rice, $595.50 for 15-percent brokens, and $535.50 for 25-percent brokens.

But why the need for importation? The reason is that the Philippines is only 90-percent sufficient in rice. The remaining 10 percent is imported.

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ADD-ON COSTS: The National Food Authority had estimated the per-metric-ton price in the world market in December was $555.80, which included the FOB projected price of $491.68 at 25-percent brokens; a processing fee (called quality premium) of $5 per ton; cost of money at $23.70 (computed at 0.9-percent per annum); the projected 7-percent increase in world prices in the first semester of about $32 (based on the price trend during the last five years), a $35 freight cost; and other expenses such as surveyors costs, bid and performance bonds and fumigation fees computed at $0.42.

Yap said the add-on costs are necessary to ensure that huge volume purchases are delivered by the seller. The gross price also took into account the deferred-payment arrangement.

Against this $555.80 projected price, Yap said the Cabinet Rice Procurement Committee clinched a reduced contract price of $549.50 per metric ton against Vietnam’s sealed offer of $554 per metric ton.

With the price reduction of $4.50 per metric ton, he said the Philippine government saved $6.75 million or roughly P330 million from Vietnam’s original offer.

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STABLE PRICES: Apparently the importation from Vietnam has helped stabilize prices. Even with the onset of the lean period that historically touches off a spike in the retail costs of the cereal, prices have remained stable.

Agriculture Undersecretary Bernie Fondevilla said that the average per-kilo retail prices of regular-milled rice (RMR) and well-milled rice (WMR) last June were P31.40 and P34.55, respectively — or lower than the P35.79 for RMR and P38.40 for WMR in June 2008.

Total rice inventory was 2.68 million metric tons last June against 2.2 million in June 2008, Fondevilla said.

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WATCHDOG: As footnote, Yap mentioned that the Manila-Hanoi transaction was monitored by an interagency panel assisted by a private-sector watchdog, the Private Sector Procurement Transparency Group.

The PSPTG had made sure that the deal was transparent and advantageous to the Philippines. The group is headed by lawyer Paterno Menzon representing the Bishops-Businessmen’s Conference.

Aside from Vietnam, seven other countries were actually asked by the Philippines to submit offers to sell us rice: the United States, Japan, Indonesia, South Korea, Pakistan, Thailand and China. Only Vietnam positively responded to the invitation.

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GOV’T-TO-GOV’T: Why did the Philippines resort to a government-to-government transaction instead of dealing with all parties interested in supplying rice through a public tender?

Yap said the Philippines could have opted for this common practice, but refrained from doing so to prevent speculative price hikes and market instability as what happened last year at the height of the rice crisis.

At that time, he said, an international expert blamed the Philippines for unduly raising rice prices in the world market when the NFA bought in bulk through public tenders.

The World Bank also requested the Philippines as early as April 27 last year to “explore alternative means to meet the country’s rice import requirements” considering that global prices may spike as a result of the practice by importers of resorting to “large-scale tenders.”

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(First published in the Philippine STAR of July 14, 2009)

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