The decision of the United States to launch an air strike against Iran, which killed its revered top general Qassem Soleimani, has resulted in spikes in commodity prices. One particular worrisome development for the Philippines is the surge in oil prices days after the US air strike. The Philippines continues to import oil and surges in international prices will undoubtedly make it more difficult for the government to hit its economic targets.
What compounds the situation for the Philippines is that it remains a net importer of food. We continue to rely on other countries for a number of food items, including rice. The uncertainty caused by the rising tension between the US and Iran, coupled with spikes in commodity prices, could lead to a higher import bill for the Philippines.
The jump in oil prices was tagged as one of the biggest contributors to the 2008 international rice crisis, which caused the Philippines to pay more than double for the staple. A paper published by the US Department of Agriculture (USDA) in 2009, indicated that rising oil prices between 2002 and 2007 contributed to the conditions that resulted in the rice price increase.
The paper noted that high oil
prices impact nearly every aspect of farming—production, processing, marketing
and transportation. Local rice growers, the USDA paper said, were also hurt by
more expensive oil as irrigation pumps typically run on diesel. As modern
fertilizers are petroleum-based, spikes in oil prices could make the input more
expensive and cause production cost to go up.
Prior to 2008, oil prices began a long-term increase in early 2002, after dropping below $20 per barrel in late 2001, according to the USDA paper. It was in August 2005, when oil prices began to increase sharply partly due to the effect of two severe hurricanes that struck the US Gulf Coast. By March 2008, prices exceeded $100 per barrel for the first time, and even reached more than $150 per barrel by July.
It will do well for members of the Duterte administration’s economic team to look back at these events and heed the lessons of the 2008 rice crisis. Global rice supply is thinning every year given the expansion in population and the failure of some rice-eating countries, like the Philippines, to improve their farm productivity. Government must see to it that measures are in place to ensure that the country has enough food stock so people will not have to fall in line for state-subsidized rice.
Government must also be wary of traders who will take advantage of the tussle between the US and Iran. The soundness of the decision of the Duterte administration to remove the quantitative restriction on rice and to limit government intervention in the rice market may be put to the test once international commodity prices become volatile. The government must closely monitor the development in the international front and ensure that safeguards are in place to prevent speculators from taking advantage of such unfortunate incident.
Poverty incidence fell to a record low of 16 percent in 2018 due largely to the decline in the prices of foodstuff, notably rice. What helped the government’s cause to cut food prices was the fact that traders were able to buy rice from nontraditional sources, which boosted domestic supply. However, volatile commodity prices could threaten the government’s poverty reduction goals and wipe out its gains if it will not act fast enough to insulate the country from the adverse impact of geopolitical tensions.