Philippines rice emergency unlikely to affect local market prices

Domestic rice prices in the Philippines are unlikely to be significantly affected amid a rice emergency in the country, with the National Food Authority due to release from its buffer stocks over the next six months to manage supply and inflation, sources told S&P Global Commodity Insights Feb. 6.

The Platts-assessed Asian rice prices that are at multimonth lows could compete with local prices in the Philippines, showed S&P Global Commodity Insights data. If prices from other origins continue to fall, Philippine importers could increasingly opt for overseas volumes rather than sourcing locally, sources said.

Platts assessed Thai 5% WR at $424/mt FOB Feb. 6, down $10/mt week over week, Vietnamese 5% WR at $388/mt FOB Feb. 6, down $11/mt week on week, Indian 5% WR at $404/mt FOB, down $8/mt on the week, and Pakistani 5% WR was assessed at $409/mt FOB Feb. 6, down $5/mt on the week, according to data from Commodity Insights.

The Philippines announced Feb. 3 a food security emergency for rice, triggered by significant supply shortages and a surge in local prices, according to a circular from the Secretary of the Department of Agriculture.

The circular said that "there is an extraordinary increase in the price of rice where the rice inflation has exceeded the upper bound target for food inflation and reached double digits."

"The Philippine Statistics Authority (PSA) reported that rice inflation in July 2023 reached 4.2 percent exceeding the upper limit of the 4 percent food inflation target of the Philippine Development Plan 2024-2028. Rice inflation further increased reaching 17.9 percent in September 2023," it said.

Targets rice affordability amid shortages

The emergency provision allows the department to direct the NFA, which is legally restricted from selling rice directly to the public, to release buffer stocks to government agencies, local government units, and the KADIWA ng Pangulo food security program, according to a release by the agriculture department.

"The intent is to sell the NFA buffer stock at low prices to local government units and other government offices—P36 to government offices and possible retail at P36-38 for regular 25%-30% broken. The NFA buffer stock was purchased from farmers last year. At that price, imported rice (25%-35% broken) is still competitive at current international prices, "said Leocadio Sebastian, former agriculture undersecretary.

He did not expect price controls as the farmgate price of palay, or unmilled rice, is most likely to be affected in the coming harvest. There is a suggested maximum retail price for imported rice at Philippine peso 55/kg for 5% broken white rice, but it is still relatively high, he added.

"The new crop is coming in the Philippines during March-April. International prices will have a big influence on local prices. If Vietnam rice continues to go down, it will affect farmgate prices -- that is, traders will prefer to import rather than buy locally," added Sebastian.

While lower-end rice may become more affordable for consumers, premium varieties like 5451 and DT8 will continue to see demand, indicating a stable market for higher-quality rice.

"Lower-end rice will be cheaper, increasing availability for the masses. However, better-quality rice like 5451 and DT8 will still have demand. The policy will not affect premium rice varieties, so there will be no impact on our market," said a Davao-based rice importer, while another Davao importer said, "We are yet to find out the implications of this."

Potential impact on import dynamics

The Philippines is the world's largest rice importer and a significant buyer of Vietnamese rice.

The NFA holds a buffer stock of approximately 300,000 mt of rice, half of which could be released over the next six months to ensure sufficient supply for emergencies and disaster response, according to the release. It could increase this volume, if necessary, as it prepares to begin palay procurement in the coming weeks.

A Vietnamese rice trader noted that buyers would resort to rationing imports or opting for cheaper alternatives.

"The Philippine government is trying to bring retail rice prices down, but I am not sure if releasing such small quantities per month will really help. I think Philippine buyers will likely ration their imports either purchasing cheaper options or reducing the quantity they buy," said the Vietnamese trader.

"These policies will continue with the local May elections in sight."

The Philippines aims to import 5 million mt of rice by 2025, a Ho Chi Minh City-based exporter said. India's white rice is more expensive compared to Vietnam and India has a longer transit time, resulting in higher freight costs and inconsistent quality, he said.

Consequently, the Philippines is expected to increase imports from Vietnam, likely sourcing 60%-70% of high-quality fragrant rice, as Thailand's prices remain elevated.

Importers are reluctant to buy large volumes due to ongoing policy changes. Another Vietnamese seller said, "With frequent policy changes and the 15% import tariff, importers in the Philippines are reluctant to import large quantities of rice at this time."

Shifts in Philippine imports

The Department of Agriculture in the Philippines has decided to lower the MRSP on imported rice prices to Peso 55/kg from Peso 58/kg, which will impact imports and could lower domestic prices, a Karachi-based exporter said.

"The government is trying to control local inflation, which has been affected by various natural disasters impacting rice crops over the last three-six months. I think imports will slow down in the coming days as they wait for the new crop, everything will depend on the new crop situation, and we can expect clearer views on import policies from Malaysia, Indonesia and the Philippines," the exporter said.

Another Pakistani trader, however, said, "It seems to be an initiative aimed at motivating the private sector to import cheaper rice and reduce prices ahead of the elections in May."

The US Department of Agriculture projected the Philippines's rice imports in the marketing year 2024-25 (July-June) at 5.3 million mt, a 17.8% increase year over year.