March 8, 2009
Philippines primes up for wheat imports influx
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In the event of corn supply problems, the Philippines resorts to imports of feed wheat - the grain tapped as an ideal substitute for corn in terms of protein content for animal feed.
But in the past two years, wheat imports have been significant allegedly due to poor corn stocks and farmers have been protesting over the shipments, lamenting that the government should instead help the corn industry rather than resort to wheat imports.
Amid the remonstration, experts believe that more feed wheat imports will come in due to factors such as the Asean Free Trade Agreement (AFTA) which calls for production efficiency; and the El Niño-induced drought which is currently drying up corn farms. In fact, corn farmers are okay with the wheat shipments as long as it doesn't overlap local corn production. But how much wheat does the country really need? Will it really solve grain deficiencies? The answers still yet remain to be seen.
More wheat to come
Most of the wheat imports are being used by the flour and food processing industry and a small segment is consumed for animal feed production. The Philippines has no commercial wheat production and consumption is totally dependent on supplies from abroad. According to the USDA, the country's rapidly growing population and general increase in acceptance of wheat products as substitute for food and animal feed grain production has resulted to the rapid increase of wheat imports in recent years. The US is the biggest supplier of wheat in the country, supplying 90 percent of its total requirements. The US shipped 1.7 million tonnes of the grain in 2008 and two million tonnes in 2009, making the Philippines the fifth largest buyer of US wheat in the world.
Wheat imports have been occasionally enjoying zero-tariff. From January to June 2008, the grain has become attractive to traders after the government allowed zero-duty importation of feed wheat following the skyrocketing prices of corn which reached PHP28 (US$0.61) a kilo from the usual PHP10 (US$0.22) to PHP14 (US$0.31) a kilo. At that time, wheat was priced at PHP10 (US$0.22) to PHP12 (US$0.26) a kilo, prompting feedmillers and livestock growers to purchase more wheat. But prices in the world market became tremendously high, hence, even with a zero-tariff, grain imports for domestic animal feed production only totalled 112,000 tonnes.
High corn prices in the second quarter of 2009 compelled the government to implement anew a zero-tariff importation of wheat. At that time, the grain commands a 7% tariff and with its removal, imports for animal feed production have ballooned to 1.1 million tonnes. The tax was re-applied in the third quarter of 2009 due to numerous remonstrations from the corn farmers.
According to farmers, prices of corn rose to unprecedented levels because fertiliser costs more than doubled. They said they have long been waiting for price protection or control for fertilisers but to no avail, thus, forcing them to hike farmgate prices. On the other hand, Roger Navarro of the Philippine Maize Federation said the zero-tariff has led to fewer corn acreage, hence, fewer supply and high prices in the long run. The federation has urged the government to go slow on imports and rather provide solutions to the ailing corn industry rather than turning to wheat imports.
The government emphasizes the zero-tariff will encourage local corn farmers to boost production but it's the other way around, according to farmers. In reality, they attest most of the corn farmers have already withdrawn from planting due to uncertainty and even if the government has mandated prices would not go lower than PHP13 (US$0.28) per kilo, there is no guarantee that feedmillers and livestock raisers would not use feed wheat. Most of them, they say, have shifted to rice or growing other high-value crops.
Last year, corn prices went down to as low as PHP7 (US$0.15) a kilo due to a surplus of feed wheat imports. Corn farmers have thought of exporting to Vietnam and Indonesia but due to some constraints, it did not push through. The glut, hence, have again translated to losses for corn farmers.
Nevertheless, the flow of wheat imports seems unstoppable this year. According to a recent USDA report, the country's wheat imports in 2010 may reach 3.25 million tonnes, an increase by one million tonnes from last year, due to the series of typhoons that devastated the country and due to reduced tariffs under AFTA.
Already, the government has bought 515,700 tonnes of imported wheat on anticipation that local corn will become more expensive as the current El Nino limits crop production. Citing industry data, the volume was contracted from late 2009 to early 2010 at an average price of US$210 a tonne, including freight costs. The grains will come from Brazil and Black Sea Region, which includes Ukraine and Russia. Sources say more feed wheat could come in if a shortage of local corn develops in the coming months. Navarro admitted that the corn prices would step up as dry spell curbs harvest in corn-producing areas.
However, he said it is likely that corn prices would shoot up and would only reach as high as PHP13 (US$0.28) per kilo and not PHP20 a kilo. As of this writing, corn prices are already pegged at PHP10.50 (US$0.23) to PHP11.50 (US$0.25) per kilo. However, even with a 7% tariff, wheat prices will still land at PHP11 (US$0.24) per kilo, still equal with corn prices.
Whilst corn's importance in feed manufacturing will never be diminished, it is imminent that wheat will become an important segment for local livestock and feed sectors. Particularly during this AFTA era wherein the agriculture sector's survival hinges on production efficiency and wheat's importance may be of greater magnitude.
However, the government must also take into consideration the fate of its corn farmers who have been languishing from several predicaments - from climate change to price inconsistencies. Now more than ever, teamwork between the government and the private sector is needed during these challenging times.
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