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PHL-Vietnam rice deal seen as hedge vs. weak domestic production

By Adrian H. Halili, Reporter

THE government’s five-year rice deal with Vietnam is expected to serve as insurance in the event production continues to fail to keep up with demand growth, analysts said.

Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said that the import deal may be a hedge in case domestic rice production remains inadequate to meet the country’s needs.

“Demand for rice is relatively inelastic as a basic necessity for many Filipinos, though any easing of local rice prices or at least tempered rice price increases will still support demand,” Mr. Ricafort said in a Viber message.

In 2023, palay or unmilled rice production rose 1.5% to 20.06 million metric tons (MT). This translates to about 13.2 million MT of milled rice. The Department of Agriculture (DA) also has a 20 million MT palay target for 2024.

“The rice import deal will help address the gap between rice production and consumption,” he added.

The Philippine’s rice consumption was estimated at 13.5 million MT in 2023, according to the DA.

“Having an agreement with Vietnam will help assuage importers of their continued access to Vietnam rice despite the current tightness in global supplies,” according to Raul Q. Montemayor, national manager of the Federation of Free Farmers, in a Viber message.
The Philippines imported 3.6 million MT of rice in 2023, with Vietnam supplying 2.98 million MT, according to Bureau of Plant Industry.

On Tuesday, the Philippines and Vietnam signed a five-year supply agreement. The signatories were Agriculture Secretary Francisco Tiu Laurel, Jr. and Vietnamese Agriculture Minister Le Minh Hoan.

Vietnam agreed to supply 1.5 million to 2 million MT of white rice to Philippine through its private sector at “competitive and affordable prices.” About 40% of Vietnam’s rice exports are to the Philippines.

“Vietnam has been the largest supplier of rice to the Philippines. An agreement to assure the Philippines of regular access to rice over a five-year horizon reduces uncertainty and speculative activity in the rice market,” Monetary Board (MB) member Bruce J. Tolentino said in a Viber message.

Mr. Montemayor added that “the impact of this agreement on local prices will depend on how much will be the landed cost of Vietnam rice, and what measures the government will take so that any reduction in import prices is reflected in retail prices and not merely pocketed by importers and traders.”

The government recently extended lowered tariffs on rice via Executive Order No. 50. Rates for rice imports were kept at 35% regardless of the minimum access volume and country of origin.

On the other hand, Ateneo de Manila economics professor Leonardo A. Lanzona said that the Philippines may be forced to pay more for rice when the Vietnam price spikes.

“Costs are likely to be the same as not having the agreement. But if prices become higher in Vietnam, then we will forced to pay the Vietnam price because of this commitment,” Mr. Lanzona said via messenger chat.

Imported rice prices in Philippine markets range from P50-P55 per kilogram for well-milled rice. Premium rice sells for P54-P62, and special rice P57-P65, according to DA price monitors as of Feb. 1.

For 2024, the US Department of Agriculture has projected that Philippines will remain the world’s top importer of rice, with shipments hitting 3.8 million MT.