Manila, May 8 - The Philippines, by far the biggest importer of rice this year, has said it plans to be more discrete in the way it buys the commodity, but neither government-to-government deals nor negotiated transactions with private suppliers look easy to execute in the current environment.
That would leave the country with little option but return to the open market before too long, a factor that will continue to support prices in the coming months, analysts said.
While government agencies in producer countries have more pressing domestic needs to address, negotiated transactions with private suppliers can be disastrous in a country where memories of goverment-linked corruption can open a Pandora's box.
Worse still, the inability of government officials to project a unified approach could make any government initiative look less than credible, leaving little sobering impact on prices, they said.
Global rice prices had began easing after the Philippines abandoned a tender to buy 675,000 tons of rice Monday and the state-run National Food Authority said it would wait until the 3rd quarter before returning to the market.
But any hopes of reduced Philippine interest was dashed the very next day with senior officials suggesting the country would continue to be a major buyer in the international market.
"We will continue to be aggressive. Our policy has been to go on an active procurement, active engagement of suppliers," said Agriculture Secretary Arthur Yap.
The Philippines' open admission of a desperate need to secure supplies in the wake of poor domestic production was partly to blame for the sudden flare-up in rice prices since the start of the year.
This prompted exporters such as India, Egypt and even Vietnam to introduce restrictions on shipments, boosting prices further.
Average contract prices agreed to by NFA have tripled to $1,135 a metric ton, cost and freight, since December last year.
Having imported 1.71 million tons so far this year, the Philippines says it has enough rice to tide over the lean production months, but recent statements by officials indicate that may not be entirely true.
"We will continue to buy.... to prepare for climatic uncertainties. It can be next week, next month, but we will continue to explore possible ways (to buy more)," Yap told Dow Jones Newswires.
The Philippine weather bureau has predicted more typhoons would hit the country this year compared to previous years. On average, around 20 tropical typhoons hit the Philippines each year.
"The chances for more typhoons and cyclones are stronger, very real. We don't know how this will impact local rice production," Yap said.
Current Market Makes Negotiated Deals Difficult
While the country has sought to buy rice directly from key producers through government-to-government deals, such deals are harder to come by in the current market environment, according to industry participants.
"It has been a clear policy of the Thai government to release its 2.1 million tons of stocks for food security in the country and not for exports," said Chookiat Ophaswongse, president of the Thai Rice Exporters Association.
Besides, other countries are also seeking rice deals with Thai authorities, he said, adding the government isn't likely to favor one country over another. "Two million tons isn't enough for all."
Earlier in the day, Thai government spokesman Vichienchot Sukchokrat said his country would supply 500,000 tons of emergency rice to Malaysia in the next three days.
Malaysia has asked for help as its rice stocks are sufficient only for 15 days, and the request is aimed at preventing a domestic shortage, Vichienchot quoted Prime Minister Samak Sundaravej as saying.
On the other hand, negotiating imports with private suppliers, such as trading houses, could be politically sensitive given constant suspicions over such transactions.
"I doubt the NFA will negotiate with private companies. It will be very difficult to justify it if they want the transaction to have a semblance of being above board," said a trader with an international trading house.
"It would be difficult to make it palatable. The safest way to go is with a government-to-government contract," said Gregorio Tan, former administrator of the NFA and currently a consultant for the Agriculture Department.
All of this point to the likelihood of the Philippines returning to the open market sooner than expected.
Little Hope On Private Imports, Regional Reserve
A move by the NFA to shore up domestic supplies by allowing private companies to import rice at zero duty in exchange for a service fee is also unlikely to gain ground as global prices are still high, making such imports difficult, said Herculano Co, president of the Philippine Confederation of Grains Associations.
Philippine companies are to bid for these quotas Friday, indicating how much service fee they are willing to pay. While NFA has set a minimum service fee of 2 pesos a kilogram, those who offer the highest service fee will get the quota.
"(But with) world prices still higher than local prices, who would want to buy?," Co asked.
Even an import price of $900/ton, cost and freight, for the 5% broken variety, would translate to a landed cost of PHP37.80/kilogram, excluding the service fee, he said. The same grade is currently selling in the local market around PHP32.00/kg.
Thai 5% broken rice was being offered at $880-$980/ton, free on board Bangkok, in the open market Wednesday. That would translate to a C&F price of $920-$1,020/ton for Philippine importers.
Moreover, NFA's allocation of 163,000 tons to private companies represents country-specific quotas agreed to by the Philippines under the World Trade Organization agreement.
Of this volume, 98,000 tons should come from Thailand, 25,000 tons from China, 25,000 tons from India and the remaining 15,000 tons from Australia.
With India, China and Australia effectively out of the export market for low-priced rice now, the usable portion of this quota is only 98,000 tons for Thailand, said NFA's Assistant Administrator Conrado Ibanez, who is in charge of implementing the program.
"The volume is fixed, they cannot use the allocation (to buy rice from) other countries because this is a commitment to the WTO," Ibanez said.
Plans to tap up to 100,000 tons of rice from an emergency regional rice reserve established by Association of South East Asian Nations along with China, Japan and South Korea, could also flounder amid more pressing need for food aid in cyclone-hit Myanmar.
So far, the response has been poor with Vietnam committing just 10,000 tons and Thailand offering 15,000 tons following the Philippine request.