The Malaysian Insider

MANILA, Nov 30 — The Philippines will hold three tenders in December to import 1.8 million tonnes of rice for 2010 in an unprecedented burst of buying by the world’s largest importer of the grain.

Here are some questions and answers on why the country is rushing to boost supplies and how it will affect world rice prices:

Is there a rice shortage in the Phillippines?

There is no shortage of the Philippines’ staple food at the moment, but the country lost about 1.3 million tonnes of paddy rice when three strong typhoons lashed major rice-growing areas on the main island of Luzon in September and October, severely impacting the harvest for the fourth quarter, usually the year’s biggest crop.

Because of the destruction, 2009 rice output is set to shrink for the first time since 1998, when a massive drought hit harvests. Farmers might not be able to replant enough to ensure there is ample supply in the first quarter of 2010, prompting the government to call tenders a month earlier than usual.

Government-held rice stocks now stand at 1.09 million tonnes, good for around 30 days’ consumption, and the state wants to start 2010 with a similar inventory.

Why the rush to buy rice?

The Philippines, which imports around 10 per cent of annual rice needs, thinks now is the best time to contract imports, because prices have not risen sharply and no other country has tapped the market, at least as aggressively as it has.

The country is worried prices will spike next year with India buying instead of selling rice after a bad monsoon cut its crop and also with a looming El Nino dry spell that could hurt output again.

Holding import tenders for 600,000 tonnes of rice each on Dec 1, 8 and 15 also gives the government leeway in case one or two tenders fail. A failed tender, or a series of them, would give Manila a strong case to go for government-to-government deals, with traditional supplier Vietnam probably topping the list.

Vietnam has a three-year commitment to supply 1.5 million tonnes of rice a year to the Philippines, and 2010 would be the third year.

If all three tenders succeed, that would bring the country’s 2010 imports to 2.05 million tonnes, including 250,000 tonnes bought in November. That already tops the 1.775 million tonnes purchased for 2009.

Is the buying related to the elections?

It is possible the government is hurrying rice purchases to guarantee there won’t be any shortage ahead of national elections in May.

Rice is very much a political commodity in the Philippines and even a perceived shortage could ruin the chances of administration candidates.

Will rice price surge?

At the moment, there is no element of panic in the world rice market similar to the early part of 2008, when export curbs by major producers and a buying spree by the Philippines combined to nearly triple global prices to record levels.

Benchmark Thai rice has risen around 9 per cent to US$565 (RM1,915) a tonne since Manila announced plans in mid-October for its first 2010 tender.

It is unlikely the price would return to the record US$1,080 per tonne touched on April 2008 given bulging rice stocks. Thailand, the world’s biggest rice exporter, is still trying to sell part of its record inventory, estimated to be the equivalent of 6 million tonnes of milled rice.

Will the Philippines import more rice?

Many in the market expect the Philippines to import up to 2.5 million tonnes of rice for 2010, which would trump the current record of 2.3 million tonnes bought in 2008.

But even if its imports reach 3 million tonnes, there is more than enough supply in the global market to cushion the impact on prices.

Even India is taking its time to import, with stocks in government warehouses up 84 per cent at 14.5 million tonnes on Oct 1.

The wildcard would be another weather disaster that could hurt harvests in the Philippines or in major producers Thailand and Vietnam. — Reuters