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Commodity Price Volatility is a fact of life

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Rolando T. Dy

M. A. P. Insights

commodities

2018 is a subdued year for many world-traded commodities. Prices are down. The Philippine countryside was not spared, as it is reeling from the effects of low farm prices of coconut oil palm and rubber. The bitter part is that farmers and workers are saddled with high food prices.

World-traded commodity producers are price-takers There are price cycles since there are many players. Supply and demand law operates. Reality check shows that to mitigate income fluctuation, productivity and unit cost are key. Low productivity can cause losses in a down-price cycle. For example, coconuts are not harvested; rubber trees are not tapped. Farm jobs are also reduced.

GOING SOUTH
2018 appears to be watershed for coconut. In 2015-2016, the situation was the same for natural rubber, as 2015 posted low prices (See Table 1).

Table 1

In the case of coconut, which forms a large chunk of the farming community, low product prices are hurting the already poverty-stricken countryside. Add to that the high food prices. A long-delayed diversification (intercropping) plan under a stakeholder-driven roadmap could have helped balance the risks.

Oil palm farms are also hurting but not as bad as coconut. But many Filipino oil palm farms are producing less than half those of Indonesian and Malaysian plantations.




Rubber prices, since their peaks in 2010-2013, are on a six-year decline. The impact on Mindanao rubber areas is telling as average farm yield is about a third that of India, Thailand and Vietnam (See Table 2).

Table 2

STABLE
Coffee and cacao are doing well. They posted lower price volatilities. However, their harvested areas are smaller and coffee yield is very poor in the Philippines (See Table 3).

Table 3

FERTILIZER AND OIL
Both have volatiles prices. Fertilizer appears “stable” from 2016 to present (See Table 4). Petrol is influenced not only by supply but also by geo-politics (e.g., Trump’s Iran sanctions).

Table 4

Incidentally, low oil prices affect the cost of synthetic rubber from oil, and in turn, farm-grown natural rubber in Mindanao.

WHERE TO?
Investing in perennial crops is a major decision. The farm is tied up for up to 25-30 years, and crops have negative cash flows during gestation. During those 30 years, expect low and high prices. To be sustainable, good practice management to achieve high productivity is primordial. Quality is also a consideration.

To access good planting materials and best-practice, small farms must be under consolidated management or variant thereof. This way, productivity and quality are achieved, and income volatility is remedied.

This article reflects the personal opinion of the author and does not reflect the official stand of the Management Association of the Philippines or the MAP.

 

Rolando T. Dy is the vice chair of the M.A.P. AgriBusiness and Countryside Development Committee, and the executive director of the Center for Food and AgriBusiness of the University of Asia & the Pacific.

map@map.org.ph

rdyster@gmail.com

http://map.org.ph

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