Thursday, 3 April 2008

What the price of rice has to do with rice production

Thursday, April 3, 2008
The Philippine Star

Let’s not be too hard on ourselves by repeating the mantra that we have failed our children by not having enough rice for our needs.

Our current rice supply concerns is not an isolated case. The problem is global. Everywhere there is concern about thinning buffer stocks for all grains.

There are many reasons for thinning food buffer stocks. The most obvious reasons being the larger populations that need to be fed on nearly a constant (if not declining) amount of land devoted to agriculture.

The more immediate reasons are weather abnormalities that damaged rice crops in several countries including ours. Diminished harvest produce temporary tightening of supply. Temporary tightening of supply in turn puts upward pressure on prices.

In addition, upward price pressure has been magnified by higher fuel costs for transporting farm produce and the entry of large funds into commodities futures. The higher fuel costs are, themselves, outcomes of demand quickly outstripping supply of fossil fuels.

The rapid growth of three populous economies — China, India and Brazil — has put pressure on existing supplies of everything from fuel to food. Increasingly prosperous consumers in population-dense economies translates into bigger appetites for both food and fuel.

We are now dealing with food scarcity of Malthusian proportion.

As populations grow, there is greater demand for land to be converted from agriculture to housing. As economies advance, there is further demand to convert land for industrial use. The problems of normal growth are exacerbated by the early effects of global warming that has wreaked havoc on agricultural areas.

Global warming is credited for the abnormal rains that flooded large agricultural areas the past few months. Those floods wiped out harvests and added to the normal tightening of food supply. Australia, for instance, has alternated disastrously between droughts and floods.

Food prices have remained relatively constant only in those economies where agriculture is heavily subsidized such as Western Europe and North America. But the constant prices in these areas are deceptive. The real accruals to cost are concealed by subsidies, which transfer resources from other areas of social investment to agriculture.

That is a painful policy dilemma in many countries. When subsidies are removed, prices could rise to an extent that poverty quickly widens. The food stocks might as well be absent if people could not afford to procure them anyway.

But let us not seek relief in the fact that the food crisis is global rather than unique to our case.

Had agricultural productivity improved significantly over the past four decades, we might have a smaller problem that we now confront. The fact is, our agricultural productivity had stagnated for decades.

With the policy architecture governing our agricultural sectors, we might as well have decreed productivity to be stagnant.

We have cut up our land into uneconomical units. We have prevented the consolidation of our farms. We have discouraged agribusiness development and focused on addressing the social justice side of the matter. We have forbidden the use of transferred land as collateral. In a word, our policies have prevented proper capitalization and mechanization of our agricultural methods.

For years, we have tried to pay our rice farmers the lowest price possible. Yet at the same time, we somehow expected them to be committed to producing a crop that is not rewarded by the market. Now we are surprised that the average age of our rice farmers is 57 and that so much agricultural land has been idled for want of farmers to till them.

If we do not reward our farmers with a good price, they will not farm. If they do not farm, there will never be enough food available. But we must understand that rewarding farmers with an attractive price for their produce means that consumers will have to pay more.

So much has been said about good rice land has been converted to residential areas. That is so obvious to anyone driving down the south Luzon expressway.

But so little has been said about how much good rice land is left idle because it has become uneconomical to work the fields. Rice production, under the present policy regime, is a poverty trap. The more one farms this commodity, the poorer one gets.

I suspect that so little has been said about this because no one dares speak the dreadful truth: rice has to cost more so that more of it will be produced.

I suspect, as well, that the amount of land converted to residential use is minuscule compared to the amount of land idled by the sheer unattractiveness of tilling them. If we allow the price of rice to go up, that will have some social costs to be sure. But that will also encourage more people to go back to farming, earning better incomes and soaking up the pool of poverty.

In a word, we have supply problems largely because we have insisted on getting the price wrong.

If we get the price right, the supply problem should quickly work itself out. People, with little coaxing, will be a bit more prudent in consuming this commodity that uses up so much of our scarce fresh water supplies.

If the price is right, I might, as my ancestors have before me, actually go forth to till the fields.

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