VZCZCXRO7678
OO RUEHCHI RUEHCN RUEHDT RUEHHM
DE RUEHML #2266 2770837
ZNR UUUUU ZZH
O 030837Z OCT 08
FM AMEMBASSY MANILA
TO RUEHC/SECSTATE WASHDC IMMEDIATE 1968
RUCPDOC/USDOC WASHDC IMMEDIATE
RUEHRC/USDA WASHDC IMMEDIATE
INFO RUEHZS/ASSOCIATION OF SOUTHEAST ASIAN NATIONS IMMEDIATE

UNCLAS MANILA 002266 
 
EEB/TPP/ABT/ATP JANET SPECK 
 
SENSITIVE 
 
SIPDIS 
 
STATE FOR EAP/MTS 
EEB/TPP/ABT/ATP FOR JANET SPECK 
 
E.O. 12958: N/A 
TAGS: EAGR EAID ETRD ECON PGOV PREL RP
SUBJECT:  UPDATE ON THE PHILIPPINE RICE SITUATION 
 
REF:  A) MANILA 00838; C) USDA FAS GAIN RP8047/RP8054 
 
¶1. (SBU) Summary: Increasing fertilizer costs, lack of farm credit, 
and typhoons will result in a decline in Philippine rice production 
in market year July 2008 through June 2009 (MY08/09).  Although we 
expect rice imports to soar and reach a new record-level, ending 
stocks are likely to fall from the June 2008 level.  Philippine 
paddy rice prices have fallen on the entry of significant volumes of 
rice imports.  Since farmers and rice millers are expected to 
experience losses as a result of the low paddy prices, production 
will likely decline for the remainder of the market year.  End 
summary. 
 
¶2. (SBU) Recent severe typhoons and soaring fertilizer costs are 
expected to result in a decline in area harvested and significantly 
lower yields during the coming market year.  Fertilizers are now 
sold from $40 to $44.44 for a 50-kilogram bag, more than double from 
a year ago.  Despite the Philippine government's announced 
fertilizer discounts and other subsidies, distribution concerns 
remain, manifested by sporadic farmer protests against increasing 
fertilizer prices. 
 
¶3. (SBU) The aggressive Philippine anti-hoarding campaign during the 
rice crisis in May this year may have backfired.  Anti-hoarding 
teams reportedly conducted raids on commercial warehouses owned by 
rice traders and millers, who are the traditional and dominant 
source of farm credit as well as the main buyers of paddy rice (the 
National Food Authority or NFA normally buys only about one percent 
of overall paddy production).  As a result, millers cut buying 
operations for fear of suspicion of hoarding, warehouse inspections, 
and harassment.  The millers have also hesitated to extend more 
credit to farmers. 
 
¶4. (SBU) Philippine rice millers complain of losses from the decline 
in paddy rice prices which resulted from the significant inflow of 
rice imports sold at subsidized prices.  Paddy rice prices have 
reportedly dropped to $0.21 per kilo even as production costs have 
risen to $0.35 per kilo. 
 
¶5. (SBU) The National Food Authority continues to sell milled rice 
at $0.40 per kilo to indigent families, and $0.55-0.77 per kilo to 
the better off sectors.  Commercial milled rice, on the other hand, 
is currently selling at $0.77-0.88 per kilo.  The NFA has announced 
it will purchase one million metric tons (about 10% of paddy 
production) out of the roughly 10 million metric ton expected 
harvest in the second half of 2008. 
 
¶6. (SBU) According to the Philippine Confederation of Rice Millers, 
the retail cost of milled rice is usually about double the purchase 
price of paddy rice.  Rice millers who bought paddy rice at a high 
price, are holding on to these stocks waiting for prices to improve. 
 However, with the main Philippine rice crop now coming in, prices 
will remain low.  Philippine rice millers predict a rice glut and an 
oversupply of rice that will become worse with the arrival of 
500,000 metric tons of rice contracted for import later this year. 
This oversupply scenario will peak in early 2009.  Farmers and local 
rice millers will likely incur losses due to the low prices, and 
production will likely decline for the remainder of 2009 as 
production costs are likely to remain high. 
 
Kenney