The conflict in Eastern Europe has upended the global commodities market, which has been putting pressure on inflation in many food-importing countries like the Philippines. The disruption caused by Russia’s invasion of Ukraine has exacerbated the food and fuel situation in many countries that have been grappling with supply and price issues caused by the reopening of the global economy. The Philippines, for one, is now seeing higher fuel prices and paying more for imported food products (See, “Prices seen rising still; April inflation at 4.9%,” in the BusinessMirror, May 5, 2022).
However, the crisis also gives nations a chance to take a step back and determine their strengths, which will allow them not only to survive but also to come out of the difficult situation much stronger than before. For many decades following the formation of the World Trade Organization, food-importing countries, such as the Philippines, have been given many options as to where they could source cheap raw materials and food. For example, the opening of global markets and the subsequent reduction of tariffs enabled the country to buy cheaper food items, even those that are produced in the Philippines.
The war in Ukraine reinforces the imperative for most countries to put in place more resilient supply chains. Governments play critical roles in promoting supply chain stability.
Currently, circumstances in the global supply chain have exposed vulnerabilities due to inefficiencies and failure to spread the risk across the supply chain. For instance, many countries are now scrambling to look for alternatives to commodities, such as sunflower oil and wheat—two crucial commodities that are globally consumed in huge quantities.
The Philippines is a rice-eating nation, but those in the bottom 30 of the population patronize instant noodles, which are cheap and filling. There is also a huge demand for imported palm oil, which is used by Philippine food manufacturers.
The spike in wheat prices has resulted in the search for more cost-effective alternatives to wheat. For one, African consumers are now ditching wheat from their diet and are incorporating alternatives, such as rice and manioc flour. Economists said global supplies of wheat could shrink even more as India is seen limiting exports after severe heat waves damaged its crops, according to a Bloomberg report.
The Philippines is one of the countries that have the potential to step up their production of alternatives to wheat, such as coconut flour. The Philippine Coconut Authority noted that there is an increasing demand for coconut-based products, such as coconut charcoal and coconut flour given the spike in fuel and wheat prices (See, “War boosts demand for PHL coco products,” in the BusinessMirror, May 9, 2022). The country can easily boost the output of these products, as coconut is a major cash crop planted by millions of Filipino farmers.
Russia’s invasion of Ukraine may have given us a lot of headaches, but it has also opened new opportunities for agricultural countries like the Philippines. The key is the willingness and resolve of policymakers to make the necessary investment that would allow the Philippines to finally diversify its sources of export receipts. Sans a commitment to stop depending on electronics, export diversification would remain a pipe dream.