Higher NFA palay buying price range may spur inflation

RICE prices are vulnerable to spikes because of the drought, but the decision of the National Food Authority (NFA) Council to compete with the private sector could put pressure on prices, according to economists.

The NFA Council on Thursday approved a higher buying price range for palay to a range of P23 to P30 per kilo of clean and dry palay, and P17 to P23 a kilo for wet and fresh palay. (See: https://businessmirror. com.ph/2024/04/12/nfa-council-okays-higher-palay-buyingprice-range/).

Unionbank Chief economist Ruben Carlo O. Asuncion told Businessmirror NFA’S recent move owed to its aim to be more competitive against private traders when it comes to purchasing rice to fill the government’s buffer stock.

“It may be that this move can even help maintain prices and help NFA with their buffers. Nonetheless, rice prices are still vulnerable to spikes because of the current challenges brought about by the drought,” Asuncion said.

Ateneo de Manila University economist Leonardo Lanzona Jr. said the increase in the NFA’S buying price could lead to an increase in rice prices nationwide, as the government can directly compete with the private sector.

Lanzona said if the government’s main goal is to build its reserves, buying rice should be done in areas where demand for rice is “stagnant and price is generally low.”

This, Lanzona told Businessmirror, will not only impact rice prices but will also achieve better regional distribution. However, NFA is buying rice in areas where prices are high.

“Given its access to taxpayers’ money, the government has undue advantage over the private sector, hence creating an upward pressure on prices,” Lanzona told this newspaper.

“With the directive to raise buying prices, the NFA is now heading in areas where prices are already high and the added demand pushes prices higher,” he added.

Lanzona said if the government’s aim is to help the farmers, this cannot be done by raising its buying price for palay which ultimately “distorts the markets and unfairly penalizes the private sector.”

Extending assistance to farmers can be done by providing public goods such as farm-to-market roads and irrigation.

Lanzona said such public goods will lead to lower production costs and benefit consumers and producers.

“Conceptually, it is wrong for the government to intervene through prices as this distorts the markets and unfairly penalizes the private sector,” Lanzona said.

“If government intends to help the farmers, this can best be accomplishing by providing public goods which the private sector are not expected to produce,” he stressed.

Inflationary–ua&p exec

MEANWHILE, University of Asia and the Pacific Center for Food and Agribusiness (CFA) Executive Director Senen U. Reyes said the increase in the NFA’S buying price for palay may be inflationary.

Reyes told Businessmirror that the NFA earlier admitted that it had a buffer stock of less than one day making it necessary to purchase stocks.

However, given a buying price of P23 per kilo, Reyes said the NFA may face stiff competition from private traders who are also buying stocks for consumers.

“Usually when NFA raises prices it does not revert to the old [prices], thus traders are likely to adjust their buying price depending on their assessment of supply with the El Nino,” Reyes told this newspaper.

Not inflationary

MEANWHILE, economists such as former Socioeconomic Planning Secretary Dante B. Canlas told Businessmirror the NFA Council decision will not lead to higher inflation in the short-term.

Canlas explained that the decision was reached to help farmers through a “price-support program” as they have been negatively affected by adverse weather conditions such as droughts and floods.

“Going by past behavior of NFA, it will maintain the retail prices in order not to reduce consumer welfare. NFA will support the price support by running a bigger deficit. Hence, the price support will not be inflationary in the short run,” Canlas told Businessmirror.

Monetary Board Member V. Bruce J. Tolentino thinks it is crucial to ask how the NFA intends to finance the increase in the buying price.

Canlas said it is likely that the increase will be financed by NFA by incurring higher deficits.

Tolentino agreed and said the NFA did not have the funds to procure at higher prices given the significant volume.

Should this happen, Canlas and Tolentino said, the reckoning will have an effect, though negligible, on the market.

“Since the price-support program has no impact on inflation in the short run, nothing will deter the BSP from the interest-rate easing it announced may start in Q3 this year to support GDP growth,” Canlas told Businessmirror.

“The prospects for higher inflation are for next year when financing NFA’S enlarged deficit has to be faced. That’s when BSP will cross the bridge,” he added.

On Thursday, NFA’S policymaking body last raised the buying price to a range of P19 to P23 per kilo of dry palay and P16 to P19 per kilo of wet palay in September last year.

Based on the Rice Tariffication Law, NFA said it needs to maintain a national rice buffer stock equivalent to at least nine days consumption, which now stands at 330,000 metric tons, to cover requirements in case of disasters and other calamities.