(Updates with comment from economist in fourth paragraph.)
June 24 (Bloomberg) -- The Philippines is considering easing rice-import curbs as Asia’s second-biggest buyer battles record-high domestic prices and seeks to limit losses at a state agency, Economic Planning Secretary Arsenio Balisacan said.
Policy makers will consider a proposal next month to adopt a free market and allow private traders to import as much rice as they want, Balisacan, 56, said in an interview in his office in Manila yesterday. The government would instead collect tariffs on the imports, he said.
“We need to get our trade policy right to address rising rice prices,” Balisacan said. “Our approach in restricting rice imports without an adequate assurance that local rice production would be sufficient to meet demand was the main factor” that led to higher prices, he said.
President Benigno Aquino is seeking to curb inflation running at the fastest pace since November 2011, boosted by the higher cost of rice, a staple in the Southeast Asian nation. Debt at the National Food Authority, which subsidizes farmers by buying their rice at higher prices, will probably climb to 180 billion pesos ($4.1 billion) by end-2016 without any changes to the program, Aquino said, or twice the nation’s defense budget this year, according to Bloomberg calculations.
“Moving to a free market allows the government to plug its cash leaks stemming from rice subsidies,” said Jonathan Ravelas, chief market strategist at BDO Unibank Inc. in Manila. “It also provides more market access for people to buy rice.”
The government had planned to import 1 million metric tons of rice this year, including 200,000 tons secured last year after Super Typhoon Haiyan struck in November. Separately, it allowed private traders in February to buy 163,000 tons of rice from overseas.
Consumer prices climbed 4.5 percent in May from a year earlier. Retail prices of well-milled rice rose 20 percent from a year earlier to a record as of the second week of June, according to the Philippine Statistics Authority.
That’s in contrast to prices of Thai 5-percent broken white rice, an Asian benchmark, which have tumbled 26 percent in the past year as the Thai government accelerated sales of stockpiles to make payments to farmers. Thai reserves have more than doubled to almost 14 million tons from 5.6 million tons in the 2010-2011 crop year prior to the start of the government’s rice purchase program, according to data from the U.S. Department of Agriculture.
“While we want to provide sufficient protection for our rice farmers, we also want to ensure that consumers, particularly the poor, would have access to inexpensive rice,” said Balisacan. “Instead of the government deciding, let the private traders and players decide that.”
To help farmers who may be hurt by cheaper imports, the government could take steps to boost irrigation, develop higher- yielding rice varieties, provide better access to credit and improve the supply chain, said Balisacan. The former World Bank economist oversees agencies including the Public-Private Partnership Center and the Philippine Statistics Authority, and is also in charge of approving infrastructure projects.
Restrictions on rice imports had encouraged smuggling, and the country’s Bureau of Customs has stepped up efforts to clamp down on the release of illegal rice shipments since Commissioner Sunny Sevilla took office in December.
The Philippines, the largest importer of rice in Southeast Asia and the biggest buyer in Asia after China, may import 2 million tons this year and 1.8 million tons in 2015, according to USDA estimates. India, the top shipper, exported 10.48 million tons in 2013, with Thailand at 6.72 million tons and Vietnam at 6.7 million tons, according to USDA data.
Officials around the region have come under pressure to control rising food prices and curb the cost of living. India will offload 5 million tons of rice, about a quarter of its state stockpiles, at subsidized rates to check price gains, Food Minister Ram Vilas Paswan said last week.
Bangko Sentral ng Pilipinas is the first central bank this year among Southeast Asia’s biggest economies to move toward tightening monetary policy as inflation quickens. Last week it increased the rate on special deposit accounts a quarter of a percentage point after raising the reserve ratio twice earlier.
The monetary authority last week also raised its inflation forecasts for 2014 and 2015, citing risks including El Nino and food costs. Food prices surged 6.7 percent in May from a year earlier, the fastest pace since April 2009, according to data compiled by Bloomberg. Food and non-alcoholic beverages have a weightage of about 40 percent in the consumer price basket.
--With assistance from Supunnabul Suwannakij in Bangkok, Norman P. Aquino in Manila and Jake Lloyd-Smith in Singapore.