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The
latest agricultural number of 4-percent growth in the
first quarter is clearly an indication of what the rest
of the year will hold. Just when you are ready to count
the
Philippines
down and out, something positive happens.
The most
positive aspect of the farm and fisheries numbers is
that rice production was up a dismal 2 percent. That is
a positive factor since the rice crop was hampered by a
prolonged cold spell (I thought we were in a period of
global warming!) Rice production for the rest of the
year should grow at a substantially higher rate than 2
percent, translating into higher overall economic growth
and lower rice prices.
However,
as you may know, I am much more interested in the supply
and price of my personal “staff of life,” lechon
baboy. No wonder pork quality is so bad and prices
so high. Hog production was down more than 4 percent in
the first quarter. And no wonder there has been so much
fish and chicken on my table in the last three months.
Both sectors grew by more than 4 percent.
Other
numbers are even more impressive. Two million tons of
corn increased levels of production by 17 percent over
last year. The Philippines grew 20 percent more bananas
in the first quarter of 2008, and coconut and sugarcane
production both increased by more than 5 percent.
Perhaps
the best news from the Department of Agriculture report
is that farm-gate prices increased by 12 percent during
the first quarter of this year. I know that to applaud
an increase in prices is “antipoor” and “anticonsumer,”
but this single factor may bring better times to
everyone in the months ahead.
The
people, whether rich or poor, who produce the nation’s
food are the most neglected, maligned and even abused
members of the economic system. Historically, so many
government programs to assist the agricultural sector
have been similar to the wayward husband who brings home
a bunch of flowers to his wife after a night of drinking
and carousing. It might temporarily improve the climate,
but does little to improve the long-term situation.
An
increase in farm-gate prices, prices paid directly to
the producer, will increase the available funds for
improved efficiency and increased production. And this
will result in lower prices and better supply down the
road.
Although
poor weather and worse government policies around the
globe have disrupted supply and increased the prices of
certain food crops, the private sector is responding
well. The US Department of Agriculture (USDA) is
forecasting a record global crop of feed grain used to
feed livestock. From Reuters: “The USDA said the world
wheat crop would rise 8 percent to a record 656 million
metric tons in 2008-09. It projected global rice output
at a record 432 million metric tons, up 5 million metric
tons from 2007-08.”
And
listen to this: “The USDA said the record harvests
expected this year meant there would be a year-end world
wheat surplus of 124 million metric tons, despite a rise
in consumption of 3.5 percent. The higher rice crop
would leave a stockpile of 82.6 million metric tons, the
largest in six years.”
Thank
goodness, world governments in this first quarter could
not move fast enough to interfere with the farmers doing
their business and damage this current and longer-term
agricultural recovery.
Now I
wish I could give as optimistic a prediction about oil
supply/prices as with agricultural products. But the
future is not all gloom and doom.
Unfortunately, oil prices are not subject to the full
free-market equation of supply and demand, prices being
tightly controlled by the Organization of Petroleum
Exporting Countries (Opec). Yet, two factors may come
into play over the next six months for us to see a
decrease in crude-oil prices. My confidence level in
forecasting this size of price decrease is medium.
The Opec
cannot afford to kill the goose that lays the golden egg
in the sense that, at some point, high prices will have
a terrible effect on First-World economies. It has not
happened yet, but the risk is there. At some high price,
the public, particularly in the United States, will turn
its back on environmental concerns and create a
free-for-all in the oil-exploration and -development
business. The Opec cannot afford this to occur.
Second,
consumers might get smarter and slow consumption demand
even further, as is already happening in the United
States. Estimates are that $30 or more of current prices
is due to investor speculation. Speculators will not be
caught on the wrong side if it appears that “cash
prices” could fall in the medium term. Therefore, any
drop in consumption that creates a two- or three-month
trend could trigger a drop in “cash prices,” prompting a
bigger selloff in the speculative market.
This
possible “better case” food and fuel scenario is not
going to happen overnight but will take several months
or longer to develop. However, regardless of what
unfolds through the rest of 2008, the Philippines is
looking at a more favorable position than just a few
months ago.
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