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Former President Gloria Macapagal Arroyo speaks at the GOLKAR INSTITUTE LECTURE SERIES.

Resilience in Rice: More than just big harvests

By Gloria Macapagal Arroyo
Deputy Speaker, House of Representatives, Philippines
President of the Philippines, 2001-2010

Thank you, Chairman Airlangga. Minister Probowo,, friends in the Golkar Party, thank you for your overwhelming hospitality. And congratulations to Golkar for establishing the Golkar Institute School. I understand it’s the first formal training ground for future leaders of government in Indonesia to be set up by a political party. How admirable. There is no better way to sustain the development of one’s country than to train young people with potential in the rudiments of politics, economics and transformative leadership. So, to the younger generation of the Golkar Party who will be the next-generation leaders of Indonesia, I greet you a resounding MABUHAY! as they say in the Philippines. Thank you, Chairman, for inviting me to share my thoughts with the party again. I’ve spoken at the Golkar Institute twice before, by video, once on resilience in the midst of the pandemic, and another time on resilience in the context of the South China Sea issue. This time we meet in person, at a time when the campaign for the Indonesian presidential elections goes into full swing. It’s relevant during this election time to discuss something of great significance to voters all over our region:  resilience on the issue of rice supply and prices. 
The policies and programs to address this issue do not need to be reinvented. The decisive factor will be implementation, meaning, executive management. The current global anxiety over rice prices and supplies reminds me of the situation faced by rice-staple nations like Indonesia and the Philippines a decade and a half ago in 2007 and 2008, when rice prices tripled in a few months. Today I will describe some of the major initiatives the Philippines took at that time.
 
But first, let me begin by quoting an article on current events by Suparna Sharma in Aljazeera last August 16. The article recalls that on July 20, 2023, after Russia pulled out of the Black Sea initiative which would have allowed grain from Ukraine to reach world markets, India imposed a ban on the export of non-basmati white rice. The move followed a ban on the export of broken rice starting September last year. India’s reasons were domestic — rising food prices, high inflation and fear of rice shortage due to El Niño as the country headed into a festive season and elections.  India’s demand for food tends to rise as they approach the wedding and festival season, which starts from September. And in November, Madhya Pradesh and Chhattisgarh legislative assembly elections are expected to take place and in December, elections for the Rajasthan and Telangana legislative assemblies.

But although India’s reasons for the bans were domestic, their impact has been global. India is the world’s largest exporter of rice and accounted for nearly 40% of global rice trade in 2022. The global concern over India’s ban was reflected in the International Monetary Fund’s warning of rice inflation.
Similarly, one of India’s biggest rice exporters was quoted as saying, “Earlier rice was trading for $550 per metric tonne, now prices are hovering around $650. India continues to export parboiled and basmati rice, but global rice prices have increased by 15-25% since the ban.”  Worst hit are poor countries in Asia like Bangladesh and Nepal and those in African countries like Benin, Senegal, Togo and Mali. Agriculture in the Philippines and, I understand Indonesia, — but you would know better than me — is being hit by climate changed conditions.

Rice from Asia accounts for 90% of the global production. 
Thailand, the world’s second largest exporter after India, has rushed to shore up supplies. Rice prices in Vietnam, the third largest exporter, are reportedly the highest they have been in 15 years. Exports from Vietnam are skyrocketing to meet demand across the region. Some 90% of the Philippines' rice imports in 2022 came from Vietnam. Naturally, prices in Philippine public marketplaces have been going up. Last August 31st, the Philippines imposed caps on rice prices.

The price ceiling mandated a maximum of 72 cents per kilo for regular milled rice and 79 cents for well-milled rice. Now, back to 2007 and 2008:
It seems that in July 2007 Vietnam restricted rice exports due to data that the volume of rice it contracted to export had equaled the total export plan of the whole year. India joined the ban in October 2007, and Vietnam banned exports in February 2008, leading to a global rice crisis. Fuel and grain prices skyrocketed then, with energy costs fueling edibles. Rice exported at over $1,000 a tonne in April 2008. Market frenzy over corn being used for ethanol escalated rice, wheat and corn rates. US corn reached $720 a bushel in June 2008, tracking wheat at $1,000+ in February that year. West Texas crude peaked at $140 a barrel in July 2008. With the global grain price surge, Philippine prices also rose, even though our rice harvest was the highest in the decade. Our rice harvest had been boosted by hybrid varieties developed with my government’s funding. But as usual, the global price surge led to speculative hoarding.

To bring down prices and stabilize supplies, Agriculture Secretary Arthur Yap, a former Economics student of mine, imported rice, partly through government-to-government contracts by the National Food Authority or NFA. The Philippines bought close to 65% of its rice needs early, at a low early price.  Later in the buying season, the only countries capable of supplying reasonable quantities of rice were Thailand and Vietnam. The Philippines had a good relationship with both countries. Invoking old trading ties and the promise of future business, we secured the balance of our needs from Vietnam still at a good price. The Philippines eventually procured a record 2.3 million tons, and the NFA released affordable rice to the market. We kept the price of rice stable at 49 cents a kilo and non-NFA rice not much higher. Secretary Yap recounted that several traders asked him to delay releasing NFA rice until they could dispose of their stocks. He refused. Yap flooded stores, leaving hoarders with big losses. So, what experience can we share from 2008 and other rice crises? One obvious resilience experience is that the government in 2008 had ample market clout to defeat and deter speculators. Speculators will always seek to treble profits by holding on to stocks, which escalates prices and future gains. But we maintained market clout, especially in areas likely to suffer shortages, like typhoon-prone regions and urban areas far from farms. The government kept ample stocks all the time, rather than rushing to import when prices shot up. There will also be both recurring as well as unexpected developments driving up prices, like weather patterns and market swings. Weather patterns affect harvests; they can change, and extreme events cause temporary shortages. And expect occasional global and local market swings like the rise in world corn prices due to ethanol production.
 
Challenges in market power lead to speculative trading, especially in basic commodities which consumers have to buy, whatever the price.  For example, back in 2017 the NFA used almost $40 million to pay down its debt rather than procuring rice. That and the limited harvests in the first half of the year led to speculative hoarding and profiteering. Some observers even wondered if traders had colluded with NFA insiders to deplete the agency’s stocks. More recently, last April, an Agriculture official reported that the NFA inventory was down to two days of national consumption, although nationwide stocks, including those in households, traders, and warehouses, were still enough for 39 days. And domestic harvests in the first quarter were up 6 percent over a year ago. But local rice prices have already surged, and the Department of Agriculture said it was investigating hoarding and price manipulation after rice hit 99 cents a kilo in the mountain city of Baguio, up from the usual 71 cents. The agriculture official said, “If rice prices right now are 56 pesos a kilo (parenthetically, that’s 99 cents), that’s not right. We will import if needed.” Now, the Philippines is lining up imports from Vietnam and India through government-to-government contracts, which India allows. To have sufficient rice reserves in the event of supply and market disruptions, it is important to boost domestic production. Depending too much on imports exposes countries and consumers to the vagaries of the highly volatile global rice trade.

To quote a 2014 article by the New York Academy of Sciences: “The international rice market is regarded as ‘thin’ and ‘volatile,’ and some of the reasons for this are”: (1) global rice trade accounts for only 7% of total production; (2) rice is mostly eaten in the same country where it is produced;  (3) many Asian countries have strict policies and restrictions on rice imports and exports;  and (4) the rice trade is highly segmented by rice variety, degree of processing  and the degree of milling.
With just 7 percent of global production, rice exports are prey to all manner of disruption in a host of nations. So, we must have our own production and agricultural modernization.

Early in my administration, I met several times with agriculture agencies,
including the Land Bank of the Philippines, to implement the Agriculture and Fisheries Modernization Act of 1997, which allocated some $450 million a year to modernize the farming and fishing sectors.
The biggest component of agricultural modernization of a country like the Philippines which has no great river system is irrigation.
I realigned budget outlays and also mobilized Land Bank credit to channel more than the $450 million stipulated for irrigation and other components of agricultural modernization. This not only boosted food production, but also helped reduce poverty by two percentage points or an estimated 2 million Filipinos between years 2000 and 2003. It also helped that I released the local governments’ share in national taxes, which had been held up in previous years. Farmers in the rice supply chain pictured on the screen from the article of the New York Academy, can boost or hamper output. Hence, our second resilience strategy in 2008 was enhancing the supply chain and addressing its limitations and failings,  especially those that caused major market distortions.  Among the many ways to do so, let me cite two that we undertook in my administration. One way to enhance the supply chain was to facilitate needed farming inputs like seedlings and fertilizer, grain dryers, Farm-to-market roads, and other post-harvest facilities. These inputs and facilities cut costs and spurred production, especially among farmers who had not bothered producing rice because there was no road to bring it to market.

Speaking of transport,   
A second key supply chain enhancement was what I called the Strong Republic Nautical Highway; an inter-island network of roll-on-roll-off ports connected by quality roads connecting major islands in our archipelago. This not only lowered the cost of passenger and cargo transport by 30 to 40 percent, but also made possible much new inter-island trade.One rice producer and trader on Mindoro Island, south of our Calabarzon industrial region, had previously shipped her grain through Manila for clients in its neighboring island of Panay. But with the Nautical Highway, she trucked the rice directly to Panay. That enabled her not only to earn more, but also to reduce what she charged her buyers. And this win-win result was replicated all over the country.

In the current administration of President Ferdinand Marcos Jr.,
his recent policy, which we in Congress empowered by law, of writing off unpaid agrarian reform loans and giving land titles to land reform beneficiaries is envisioned to further boost funding and output for many thousands of ricelands. Now, farmers can use their land to get farming credit, greatly enhancing their productivity.
A third and widely acknowledged instrument for rice resiliency
is science and technology, especially for two key strategic thrusts: the just-mentioned supply chain enhancement, including the production of the rice itself, and risk management.

An oft-quoted fact is that while world population grew 90 percent between 1966, when the first Green Revolution began, and 2000, paddy rice output surged 130 percent. I have also mentioned our 2008 harvest increase helped by hybrid rice cultivation. Its proponent SL Agritech worked with

Yuan Longping, China’s Father of Hybrid Rice. And SL Agritech has also brought its seedlings to Indonesia.
The Philippines has of course been at the forefront of farming technology with the International Rice Research Institute or IRRI south of Manila.
IRRI opened in 1962 when my father, the late Diosdado Macapagal, was president of the Philippines.

As we seek out rice-related technologies, one area not to miss is sustainability. Water usage is especially crucial. We may be needing rice varieties that thrive in coastal and flood-prone areas. This is especially crucial to archipelagic nations like yours and mine, with many thousands of islands facing farmland loss due to rising oceans.
On risk reduction, existing and upcoming risk monitoring, assessment and management systems are good to explore and implement, including those utilizing artificial intelligence to better analyze and act on increasing mountains of data.

A 2012 Asian Development Bank paper also suggests: “ASEAN can play a major catalytic role in developing the commodities exchange as a viable option for addressing price risk and price volatility in rice. It could work toward removing the uncertainties and adverse impact of unilateral trade policy restrictions. Furthermore, it can initiate steps toward rice standardization and the development of a regional rice index.”
It is auspicious that the 2023 ASEAN summit has just taken place in Jakarta. There President Marcos called for ASEAN and its partners in East Asia to strengthen regional food security mechanisms.

Whether an ASEAN commodity system is set up, the ASEAN Integrated Food Security Framework and Strategic Plan of Action on Food Security in the ASEAN Region, established after the 2007-2008 global grains crisis,
provided a mechanism for working together in enhancing rice resiliency in the region.Which brings us to a further resilience strategy:
International cooperation and risk management can help mitigate rice problems.   

As the ASEAN logo shows,ten rice stalks bound together are far stronger and unbreakable than separate nations. Our ten nations in ASEAN should certainly maximize our collective mechanisms for food security and resilience.

I will end now with one overarching experience.  This applies whatever the crisis, be it a pandemic, a food crisis, or even a potentially military one. For any government to be able to respond, it has to have the fiscal means to do so. Indispensable in responding to the vagaries of volatile food supplies and prices, the government must have ample fiscal space and resources to quickly mobilize supplies and address scarcity and surges. In my time as president and an economist, that is what I enabled the Philippines to do – to restore our fiscal stability, even at the political sacrifice of increasing taxes.  That gave us the underpinning for resilience during our 2008 rice crisis and during the 2008 global recession. Earlier I mentioned my father, the late President Macapagal. He was the first Filipino leader who dared be close friends with Indonesia during the Cold War when Indonesia was ostracized by the west for choosing to be non-aligned. I end my talk today with something my father often said, “Logic can mislead us, but experience, never.” Today I have spoken to you not so much from logic nor wisdom, but from experience. I hope my story helps you, the future of Indonesia.

Mabuhay!

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