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The food crisis in Philippines a couple of years ago caused widespread unrest and public outcry that made the government to react swiftly. The causes of this crisis, particularly in the staple food rice are discussed in this study. The action taken by the Philippines government is also captured in the government and conclusions made in the last section.
Rice farming in the Philippines is an important economic activity to the country. Much of its food supply comes from domestically produced rice. In fact, the country is ranked the eighth world rice producer. Similarly, Philippine is the largest rice importer in the world according to a Reuters report. Apparently, rice is the country's most important food crop and a staple food. In the last couple of years, rice production has been by an immense crisis in the country. The high demand for the food crop has not been able to match the production levels met by the country's productive lands.
Economic growth in other parts of the world which has increased demand for food has caused a rice shortage; resulting in high prices in the last year. For the average Philippine, high prices for rice is quite hard to afford. A third of the population lives under two dollars a day and cannot withstand the escalating food prices particularly the staple food. Worse still, rice prices are expected to continue increasing due to the rising demand and uncertainties in production. This paper aims at discussing the various issues surrounding rice production and market in the Philippines with reference to economic theories and models. The aspects to be captured are demand and supply, shortage, subsidies, elasticity and well as imports.
Demand and supply are primary concepts of core importance in market economy. Demand is the quantity of a product that is desired by consumers at any given time. It is the amount of a product that consumers are willing to purchase at a given price. The quantity demanded and prices are related by a relationship referred to as the demand relationship. Conversely, supply refers to the amount of goods or services which producers or manufactures are able to offer to support the demand.
The quantity supplied depends on the amount that producer are willing or able to supply at given price. Price and supply are related by the supply relationship. It is therefore inferred that price is a function of demand and supply. The case of rice in Philippines is a reflection of demand and supply dynamics. The annual population growth of the country exceeded 2% in the year 2007. This translates into increased demand for rice due to the growing number of consumers. This created unrest over the crop's shortages and the government pressured to take necessary action. The rice demand curve is shown in Fig 1.
Supply of rice in the country has fundamentally been affected by the hiking prices of farm inputs. Though other parts of the world experienced the same problem of rice supply, Philippines has not attained self-sufficiency of the crop in recent years and has been importing most of its supply. Various factors can be attributed to the low supply of rice in the country. For instance, agricultural land is intensively diverted to commercial use.
Moreover, farmers are not provided with enough incentives to adequately produce rice. Therefore, they have to endure poor irrigation practices and the little rice they produce is bought at low prices by private traders. NFA, the national food security body that ensures stable demand and supply has also been buying rice from farmers but on limited scale. This leaves most farmers at the mercies of unscrupulous traders. Fig 2 below demonstrates the rice supply in a graph. A bumper harvest may however reduce the prices, as shown in Fig 2.1.
The impacts of the instability of prices and demand and supply of rice in Philippines have been rice shortage and price hikes for the last two to three years. According to the laws of demand and supply, when demand exceeds supply, the price of a commodity tends to rise and vice versa. Price also tends towards the equilibrium point of demand and supply. These laws are very crucial in economic theory. A reflection of the shortage of rice is shown in Fig 3 and 3.1.
The Philippine government resolved to look for long term solution to the rice problem. Among its strategies are irrigation aimed at raising production, credit for rice farmers and restructuring the rice trading system to eliminate unscrupulous traders who manipulate farmers. Habito, a former economic planning secretary during the time of rice crisis in 1995, said that the government would provide incentives to farmers so that they can produce more. However, he expressed concerns regarding how the increase would influence commercial traders to raise their buying prices too.
Economists such as Habito suggest that the NFA (National Food Authority) be abolished or its rice monopoly eliminated. The agency is said to distort the rice market as it always relies on statistics provided by the government. They further suggest that the traders should be charged with the responsibility of importing rice as they anticipate rice shortage firsthand. With government subsidies however, farmers will be able to produce more rice. This will eventually boost supply and prices will fall correspondingly. With government subsidies, farmers are able to produce more rice which will result into increased supply. This is demonstrated in the Fig
Elasticity relates to demand and supply. Demand elasticity measures the degree of responsiveness of quantities of an item demanded relative to price. On the other hand, supply elasticity measures the degree of responsiveness of the quantity of an item supplied relative to changes in price. A supply elasticity graph is shown in Fig 4. Price elasticity of demand for rice in Philippines is inelastic as it is an essential food product. Inelastic demand for rice in the Philippines is demonstrated in Fig 4.1.
To the Filipinos, it is a dietary necessity and consumption changes are not significantly affected by changes in price. Similarly, price elasticity of rice supply in Philippines is also inelastic. Fig 4.2 demonstrates the inelasticity of rice supplied by farmers in the Philippines. This is because rice is a primary product in the country and its production is seasonal. The time taken by the long gestation periods of rice makes its supply inelastic. Time is the main factor that affects price elasticity of supply. Rice takes long periods to mature hence its supply from Filipinos is perfectly inelastic. Its quantity cannot be changed even when it matures. On the other hand, if rice is imported from the global market, rice supply in Philippines remains relatively inelastic at SSR in Fig 4.3, though not as perfectly as SD in Fig 4.2.
Even though Philippine is a vast producer of rice, the government still has to import rice from external producers to meet its growing need for the crop. As the world's largest rice importer, the country imports over a million tons of rice every year. NFA is responsible for importing most of the rice but the private sector also imports a significant amount of the crop. Imports come mainly from Vietnam, Thailand and Pakistan where prices are relatively friendlier. Rice importation is part of the government's strategy to maintain food security and social stability. The country aims to expand its reservoirs for the crop so as to control the oscillating rice prices. The NFA aims at stabilizing rice prices in the market.
Rice is a politically and socially sensitive commodity in the Philippines and the government is keen on securing its supply at all costs. In fact, even the import prices of rice have gone up yet the government continues to import since the escalating demand may spark political or social unrest, should supply go on decreasing. With rice imports, consumer surplus will increase and this will result in lower prices for the consumers. Figure 5 demonstrates these changes as a result of imports. From the figure, consumer surplus increases to regions B, C, D and E while producer surplus decreases to just region A. After trade, total surplus increases from regions A, B and E to include regions C and D gained.
The demand and supply of rice in Philippines keeps fluctuating; a fact that keeps local citizens worried about possible shortages and other uncertainties. The move by the government to import rice voluptuously is not enough to guarantee food security for the average Filipinos. This study helps to explain the prevailing situation of rice in the country while referring to basic theories in economics.
The real world context of the rice situation may vary from time to time and depends on the country under scrutiny. However, the rapid growth of world economies continues to exert pressure on world food production in general. Therefore, long term solutions to the food crisis by the international communities are appropriate if countries like Philippines are to be assured of political and social stability; given the unstable food situations they constantly encounter.