Energy and agriculture: Get serious

Column box-John Mangun-Outside the Box

Our local economic forecasters are reasonably accurate—some more than others, of course—when the numbers stay within an established trend. Most do a terrible job at predicting—as they did with the latest inflation numbers—when there is major shift out of the trend.

Based on the course of inflation that started in March when it moved from the previous three percent to four percent, the trend “predicted” no more than 7.3 percent for October rather than the actual 7.7 percent increase, with food prices rising the most in four years.

These forecasters are highly skilled at “data mining.” It is just that they are digging in the wrong place.

I would assume that at least some do their own personal homework maybe in the course of their daily lives, shopping at the malls and buying groceries at the nearest supermarket. But those outlets do not, and actually cannot, react to price changes in the “farm-to-market-economy” quickly enough to be able to spot trend changes.

Want to track inflation? Go shopping (better yet have a pork, chicken, and vegetable suki) at a palengke and not at one of the super huge wet markets. The big palengkes are often just a “rustic” version of a ShopWise, Robinsons or WalterMart that may buy in bulk from vendors. However, your suki at a small local talipapa changes the price of the pork cuts from the pig they brought in from Batangas last night.

To paraphrase the “Ghostbusters,” Philippine inflation currently is a disaster of biblical proportions: “Real wrath of God type stuff. Fire and brimstone coming down from the skies! Rivers and seas boiling! Dogs and cats living together…MASS HYSTERIA!”

One analyst who had the closest forecast—7.4 percent, which as I said was the trend plus a little more—attributed the price increases in part to global prices of food also being high. But “the FAO Food Price Index averaged 135.9 points in October 2022, virtually unchanged from September, with the price indices of all the covered commodity groups, except cereals, down month-on-month” and only 2 percent above October 2021.

The reality is not that global food prices are higher. It is that Philippine food prices are out of control. Again, food and non-alcoholic beverages, which account for nearly 38 percent of the theoretical consumer basket, rose to 9.4 percent year-on-year in October. The typhoons played a substantial role in the overall increase and will continue to do so. But the root cause is that Philippine agricultural production has been ignored for decades with only effectively subject to lip service.

The last secretary of Agriculture who actually made a living from the land was Roberto Sebastian under President Fidel Ramos. Sebastian managed the Marsman banana plantations from 1976 and was the company’s president and CEO. The others who might have had an earlier connection to agriculture became politicians.

Also contributing to the faster headline inflation in October were housing, water, electricity, gas, and other fuels at 7.4 percent annually.

The two major deficiencies of the Philippine economy are energy and food security and self-sufficiency. While renewable energy is a noble and even financially sound pursuit, it is not a mass-scale baseload alternative to coal/natural gas power generation. Further, current primary energy supply mix from indigenous sources is 52 percent. We have a long way to go, and wind and solar won’t get us there.

The Department of Energy created a realistic and practical energy plan through 2030 with a side program specifically for “renewables” as useful and applicable. But it needs to be fast-tracked with proper legislation and strong backing for its implementation from Malacañang.

Unfortunately, the Department of Agriculture’s 2016 “The One DA Reform Agenda: Eighteen Key Strategies” along with its 2018 “The Philippine Rice Industry Roadmap 2030” read more like a “wish-list” rather than an action plan. The Rice Roadmap required 17 technical working groups. Top rice producer Thailand shifted away from protecting peasant rice farmers to more of a commercial, profit-maximizing industry. Also, villagers have a “cat procession,” throwing water at it in the belief that a “crying” cat brings a fertile rice crop.

The Philippines must become more serious and proactive about energy and agriculture. The future waits for no man or country. 

E-mail me at Follow me on Twitter @mangunonmarkets. PSE stock-market information and technical analysis provided by AAA Southeast Equities Inc.


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