Inflation caused by Agricultural trades: The Impact of Imported

Rice to the Local Rice Producers.

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 CHAPTER 1

Introduction

In the Philippines, rice is more than just a staple food. It is a symbol of culture
and a livelihood for the local farmers. However, the changes in the economy have
brought changes in the agricultural sector. In recent years, the Philippines has become
one of the world’s largest importers of rice, mainly to meet the growing demand and to
stabilize national prices. One of the urgent problems is how it affects local rice
producers due to the increase in inflation rates. According to Philippine Statistics
Authority (PSA) data, rice was the number one contributor to inflation in September
2018, while food items in the consumption basket accounted for more than half of the
inflation rate in the same month. The rice tariffication bill, once passed into law, is
expected to liberalize the importation of rice in the country. It will also help lower rice
prices while providing enough support for local farmers who will be affected by the influx
of cheaper rice imports. This measure has been certified as urgent. Economic
managers said liberalizing rice imports will lower the retail price of rice by P2 to P7 per
kilo (based on the latest estimates), and reduce inflation rate by 0.4 percentage points.

This year, rice prices started creeping upwards. Data from the Philippine
Statistics Authority (PSA) reflected a steady increase in rice prices starting at 2.6
percent in March, then 2.9 percent in April, 3.4 percent in May, and 3.6 percent in June.
The Department of Agriculture (DA) has explained that the recent increase in prices is
related to the higher cost of fuel and fertilizers, which has resulted in the current
farmgate price of rice of between P19 to P21 per kilo from a previous P16 to P17/k.
Government’s subsidies to rice farmers are not enough to offset the higher prices of
farming inputs, or that allocated money is not reaching the intended beneficiaries.
Among the reasons for the upward trend in rice prices was the earlier reaction of traders
to a possible increase in rice imports, and recently, to alarming developments affecting
both rice and corn exports from major grain producing countries.

India recently announced that it would restrict exports of non-basmati white rice
to lower its domestic prices and ensure adequate supply for its own people. Devastating
floods in Pakistan last year tightened rice supply, and India is factoring in the possible
effect of the El Niño weather pattern spilling over to its agricultural sector. The surprise
ban of rice exports immediately sent prices in the global market higher since India
accounts for about 40 percent of the world’s rice trade. Other countries aside from the
Philippines that rely on Indian rice exports are Malaysia, Vietnam, Nigeria, Ivory Coast
and Senegal.

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