VZCZCXRO7678
OO RUEHCHI RUEHCN RUEHDT RUEHHM
DE RUEHML #2266 2770837
ZNR UUUUU ZZH
O 030837Z OCT 08
FM AMEMBASSY MANILA
TO RUEHC/SECSTATE WASHDC IMMEDIATE 1968
RUCPDOC/USDOC WASHDC IMMEDIATE
RUEHRC/USDA WASHDC IMMEDIATE
INFO RUEHZS/ASSOCIATION OF SOUTHEAST ASIAN NATIONS IMMEDIATE
UNCLAS MANILA 002266
EEB/TPP/ABT/ATP JANET SPECK
SENSITIVE
SIPDIS
STATE FOR EAP/MTS
EEB/TPP/ABT/ATP FOR JANET SPECK
E.O. 12958: N/A
TAGS: EAGR EAID ETRD ECON PGOV PREL RP
SUBJECT: UPDATE ON THE PHILIPPINE RICE SITUATION
REF: A) MANILA 00838; C) USDA FAS GAIN RP8047/RP8054
1. (SBU) Summary: Increasing fertilizer costs, lack of farm credit,
and typhoons will result in a decline in Philippine rice production
in market year July 2008 through June 2009 (MY08/09). Although we
expect rice imports to soar and reach a new record-level, ending
stocks are likely to fall from the June 2008 level. Philippine
paddy rice prices have fallen on the entry of significant volumes of
rice imports. Since farmers and rice millers are expected to
experience losses as a result of the low paddy prices, production
will likely decline for the remainder of the market year. End
summary.
2. (SBU) Recent severe typhoons and soaring fertilizer costs are
expected to result in a decline in area harvested and significantly
lower yields during the coming market year. Fertilizers are now
sold from $40 to $44.44 for a 50-kilogram bag, more than double from
a year ago. Despite the Philippine government's announced
fertilizer discounts and other subsidies, distribution concerns
remain, manifested by sporadic farmer protests against increasing
fertilizer prices.
3. (SBU) The aggressive Philippine anti-hoarding campaign during the
rice crisis in May this year may have backfired. Anti-hoarding
teams reportedly conducted raids on commercial warehouses owned by
rice traders and millers, who are the traditional and dominant
source of farm credit as well as the main buyers of paddy rice (the
National Food Authority or NFA normally buys only about one percent
of overall paddy production). As a result, millers cut buying
operations for fear of suspicion of hoarding, warehouse inspections,
and harassment. The millers have also hesitated to extend more
credit to farmers.
4. (SBU) Philippine rice millers complain of losses from the decline
in paddy rice prices which resulted from the significant inflow of
rice imports sold at subsidized prices. Paddy rice prices have
reportedly dropped to $0.21 per kilo even as production costs have
risen to $0.35 per kilo.
5. (SBU) The National Food Authority continues to sell milled rice
at $0.40 per kilo to indigent families, and $0.55-0.77 per kilo to
the better off sectors. Commercial milled rice, on the other hand,
is currently selling at $0.77-0.88 per kilo. The NFA has announced
it will purchase one million metric tons (about 10% of paddy
production) out of the roughly 10 million metric ton expected
harvest in the second half of 2008.
6. (SBU) According to the Philippine Confederation of Rice Millers,
the retail cost of milled rice is usually about double the purchase
price of paddy rice. Rice millers who bought paddy rice at a high
price, are holding on to these stocks waiting for prices to improve.
However, with the main Philippine rice crop now coming in, prices
will remain low. Philippine rice millers predict a rice glut and an
oversupply of rice that will become worse with the arrival of
500,000 metric tons of rice contracted for import later this year.
This oversupply scenario will peak in early 2009. Farmers and local
rice millers will likely incur losses due to the low prices, and
production will likely decline for the remainder of 2009 as
production costs are likely to remain high.
Kenney