How inflation exposed gaps in the food supply chain

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By Reicelene Joy N. Ignacio

LAGUNA — The onset of 6.7% inflation in September disrupted many people’s lives, not least of them the poor, who now have to make do with less. Inflation’s effects are visible to anyone who fills up his car with fuel or puts together a household budget or buys groceries. For those who spend most of their time in the online world, inflation has even become meme-worthy, with the price of the humble sili scandalizing the population and urban legends cropping up about commuters offering to pay their way with chili peppers, once so common as to be given away free at restaurants, now worth their proverbial weight in bus fare.

The visible impacts are obvious enough but perhaps the depth of the disruption remains under appreciated. High costs send businesses scrambling to find lower-cost suppliers, and governments wary of public unrest seeking to find ways to make grocery shopping less traumatic for the public. Technocrats struggle to control the narrative about what exactly caused inflation, denying that tax reform was the main culprit and blaming, among oher things, oil. Typhoons raise the prospect of massive supply disruptions as well as the brief promise of a bonanza for those growing the crop away from the path of destruction. Along the way, this race to find low-cost alternatives in the face of mounting inflation creates winners and losers, not to mention a slew of unintended consequences, though 6.7% price growth would suggest that times have become extreme and the fate of the losers, even more so.

Such is the backdrop for the perfect storm that last month hit the tomato farmers of Kalayaan, Laguna, a place which by rights ought to be perfectly situated to serve the agricultural needs of a nearby capital region. Why it didn’t realize a windfall after a storm effectively knocked out Luzon’s main vegetable-growing areas in the mountains of the north is a question that bears some unraveling, and the list of suspects is diverse: climate change, the misplaced optimism of farmers, the market competitiveness of food grown in upland regions, the creaky logistical arrangements not just between producers in Mindanao and consumers in Luzon, but between those in Laguna and Metro Manila, only a short distance away.

Months before typhoon Ompong (international name: Mangkhut) hit northern Luzon in mid-September, tomato farmers like Wilma C. Combes went into debt to plant tomatoes in Kalayaan, Laguna, which is on Laguna de Bay on the shore directly opposite the region’s natural market, Metro Manila.

Ms. Combes estimates that she took in debt of P200,000 earlier in the year to be able to afford to plant one hectare of land to tomatoes, paying 10-12% interest, with the loan due in six months, or after the crop is sold following the harvest. There was reason for optimism because a previous crop yielded her P200,000 on an investment of P100,000. The hope was for a hectare to yield 10 tons of tomatoes on average. All told, the farmers of Kalayaan planted 50 hectares to tomatoes.




The math was attractive: At 10 tons per hectare, a farmer will only need to clear a bit over P20,000 per ton to break even just on the loan; the better the price at market, the bigger the margin to pay for overhead and perhaps a good chance of clearing a tidy profit. There was even a reason to hope that Laguna’s position away from the normal track of late-year storms and the protection offered by the Sierra Madre range might shield the area from the worst of the typhoon damage that later befell other parts of Luzon

Magandang pagkakitaan ang kamatis, marami kasing bumunga iyon. Kung kumita lang kami sa dami ng bunga nu’n, makakabayad kami ng utang. May tubo pa. Ngayon lang talagang lugi. Noong isang taon, kumita kami,” (The earnings potential from tomatoes is large because the crop generates lots of fruit, usually enough for us to pay our debts, and with a profit. This year we are in the red, unlike last year, when we made a profit”) according to Ms. Combes.

So what happened?

Another farmer, Vilma C. Cabus-Cabus, said the first sign of trouble was when traders started returning unsold produce after failing to dispose of the town’s shipments to wholesalers in Divisoria. The reason given was oversupply.

Sa dami ng kamatis, hindi siya naubos sa market. Ang daming nagsobra na sa market. ‘Yung kamatis, kaya binalik diyan ng traders para paniwalaan ng farmers na hindi nabenta (There were a lot of tomatoes on the market and our crop was returned by the traders so the farmers would believe that they were not sold),” according to Ms. Cabus-Cabus.

Sobrang daming dumating na kamatis nu’ng time na iyon, kung saan-saan nanggaling, nagkasabay-sabay na, (There was a surplus of tomatoes during that time, from all sorts of places, and they all came in at the same time),” Ms. Cabus-Cabus said.

 
Municipal Agriculture Officer (MAO) Liza L. Yee said that most farmers were not able to recoup half of their capital, and noted that oversupply makes farmers extremely vulnerable with no secondary markets to sell to.

Ms. Yee said the problem of secondary markets boils down to the absence of processing facilities that can take unwanted product off the farmers’ hands if they fail to sell the fruit in unprocessed form. The processor, which makes derivative products like canned tomatoes, tomato paste or ketchup, may not pay the best price compared to dealers selling whole fruit, but the surplus at least won’t be a total loss.

“‘Pag nag-oversupply, dapat may mga processing facilities kung saan mo dadalhin iyong sobra. Sana may mga processing facilities sila (When a crop is in oversupply, there needs to be a facility where you can bring the excess. I wish they had processing facilities),” Ms. Yee said.

 
But that doesn’t really answer the question of why a favorably-placed farming region can’t sell to its natural market at a time of perceived scarcity caused by a storm.

Recall the turbulent economic atmosphere of early September, and how it was becoming a serious political problem: August inflation had just hit 6.4%, the highest in nine years, and food prices were blamed alongside oil prices and tax reform. Worries about food were especially prominent following a high-profile scandal at the National Food Authority (NFA), which had somehow allowed its inventory of rice, a critical part of the Filipino diet, to be depleted. Thus relieved of the need to compete with low-cost rice typically purchased by the poor, commercial rice became the only game in town, and demand for it spiked. And that was even before the storm made landfall, on Sept. 15., traversing northern Luzon, doing serious damage to the road network and, not least, the vegetable growers of the Cordilleras, and making it clear to everyone that key parts of the food basket were going to become even more expensive.

The Department of Agriculture (DA) announced plans to ease the supply crunch by hosting farmer’s markets called TienDA, targeted at some of Metro Manila’s poorest neighborhoods. The TienDA model depends on direct sales from farmers that cut out the middleman, and sellers benefit from indirect subsidies because the DA supplies the sourcing and market-matching function and plays a role in logistics. Speculation quickly emerged about TienDA’s supply chain, with Kalayaan’s farmers, speaking not for attribution, picking up a rumor that Agriculture Secretary Emmanuel F. Piñol had chartered a cargo aircraft to bring vegetables from Bukidnon to Metro Manila markets.

Were low-cost, government-subsidized Bukidnon tomatoes responsible for the oversupply in Metro Manila after Ompong? For this to even be possible, one must assume that TienDA sales were more than a political gesture, and were sizeable enough to crowd out produce grown by unsubsidized suppliers closer to Metro Manila. In any event, the Department of Agriculture, asked to comment on the Bukidnon cargo plane speculation, said most of the TienDA vegetables were sourced from Nueva Vizcaya, a northern upland province which appears to have avoided the worst of the storm damage.

A Divisoria vegetable trader, Bowi Cortez, said in a phone interview that traders have long sourced seasonal vegetables from Cagayan de Oro (CDO), the port city serving the Bukidnon hinterland, and those orders coincided with high yields in the Laguna area.

“June to December, nanggagaling ang supply sa CDO. Bakit? Dahil rainy season ‘yan (in Luzon) (Between June and December the supply comes from CDO because it’s rainy season in Luzon).”

He said a shift in climate means more dry months for Luzon, when previously they used to be rained out for farming; suddenly more land became suitable for planting at, from a market point of view at least, the worst possible time.

Mr. Cortez said in typical years, Laguna can only produce during April and May.

Ngayon, dahil nagbago na ang klima, nakapagtanim na sila ng rainy season. (Now that the climate has changed, they can plant during what used to be rainy season)… Kung susundin ang season na ang tag-ulan ay tag-ulan, nanggagaling lang ang kamatis sa CDO. (If we were following the traditional rainy season, the tomatoes would all be coming from CDO). Dahil siguro nakita nila na pinagkakakitaan ang kamatis ng ganyang panahon, maraming nagka interest na magtanim dahil gusto nila kumita (Because they saw that tomatoes can be profitable when planted out of the usual season, more farmers were interested in planting),” Mr. Cortez said.

Mr. Cortez said that the oversupply was also unfavorable for traders, who failed to fully recoup their costs shipping produce from Mindanao to Divisoria, plus workers’ pay and storage.

He said for traders, the math worked out as follows: “Namumuhunan kami ng P1,400 tapos binenta lang namin ng P300. (We invested P1,400 and we were able to sell at P300). ‘Di naman kami umo-order ng isang kahon. Ino-order namin per container, isang van. Ang isang van naglalaman ng 260 boxes (We don’t order by the box, we deal in container loads at one container van to 260 boxes.”

A provincial-level DA official thinks the tomato farmers knew the risks of planting too much tomato and may have been encouraged by the returns of previous years, while denying that they suffered losses to the extent claimed.

Laguna Agricultural Program Coordinating Officer (APCO) Antonio C. Visitacion doubts that the farmers lost as much as they are claiming, but conceded that they did not reach the expected earnings.

“Nalulugi lang sila based sa kanilang assumption (They are only unprofitable relative to their initial assumptions of profit),” he said, noting that in previous plantings farmers earned as much as P500,000 and there were reports of individuals being able to pay for new vehicles with their proceeds.

Sa agriculture production, masasabi nating nalugi kung tinamaan ng calamity, totally wiped out (You can only claim losses in agriculture when you’re hit by a calamity and your crop is totally wiped out),” he added.

He suspects freakish local supply conditions aided in part by favorable weather. “Simula nu’ng September hanggang ngayon, ang ganda ng climate dito sa CALABARZON (between September and now the climate has been good in CALABARZON), he said, referring to the region formed by the provinces of Cavite, Laguna, Batangas, Rizal and Quezon. “The moment na masira ‘yung Norte, ang supply ng gulay partially manggagaling sa CALABARZON (The moment that the vegetable crop in the North suffered damage, the supply of vegetables was going to be filled partially by CALABARZON).”

So far, so good. The problem? “Kaso nga sa puntong iyon, nagsabay-sabay naman ng harvest… nagbaba ang presyo (However at that point, everyone harvested at the same time, and prices plunged”), Mr. Visitacion said.

Ms. Yee, the Kalayaan MAO, confirms this assessment of the weather. “Maganda talaga ‘yung naging klima, tsaka itong area namin, upland area itoIn-expect namin na kami ‘yung may magandang production (The climate was good in our area, and our farms were in upland areas as well. We were expecting good production),” Ms. Yee said.

Things came to the broader public’s attention when the farmers in Kalayaan, with TV cameras rolling, dumped a reported 10 tons in unsold tomatoes to protest their inability to find a market.

The Agriculture director for CALABARZON, Arnel V. De Mesa, denied that tomatoes were dumped in those volumes, estimating the actual quantity at about a tenth of what was claimed in television reports.

Hindi siya tonetonelada. (It wasn’t in the tons),” Mr. De Mesa said. “Yung nakita nila roon is as little over one ton (What the news crews saw was a little over one ton).

He said when the shipments from Kalayaan were brought to Divisoria, the main wholesale market in Manila, “hindi na-absorb ng trader at tsaka ng merkado iyong ganung klase ng kamatis (the traders and the market were not able to absorb the supply)… Dahil hindi pa consummated iyong transaction, hindi pa bayad ‘yung kamatis na dinala sa Divisoria (because the order was not consummated at that point, the produce brought to Divisoria was not paid for), kailangan ibalik sa source para sabihin sa mga farmers na hindi nabenta o hindi nabili, kasi hindi iyon mababayaran. (the unsold produce needed to be returned to the farmers, because it was not paid for). Pagbalik doon ‘di alam ng farmers gagawin ‘yun ng trader, dinampyung kamatis doon sa kalsada (The farmers never expected the traders to do that so when the tomatoes were returned they dumped the shipment in the street),” Mr. De Mesa said.

Mr. De Mesa said that the tomatoes of Kalayaan could have been sold locally or processed into ketchup or puree, though the produce had been dumped by the time the MAO and APCO found out about the protests.

“‘Yung ganoong karaming kamatis, pwede pa ‘yun, fresh pa, pwede pa sana ibenta sa palengke, o sa mga karatig bayan, through the coordination with our municipal agriculturist or provincial agriculturist (That quantity of tomatoes could have been sold in local markets through coordination with out municipal or provincial agriculturist),” he said, noting that the officials could have also helped arrange a sale to processors even outside the area.

Mr. De Mesa said stronger collaboration is needed among the region’s farmers and agriculture officials.

Kailangan talaga pagplanuhan, hindi dapat sabay-sabay. (We need to plan and not plant the same things at once) Itong kamatis… alam nating pagka masyadong marami… kung gugustuhin nilang kumita ng malaki ay mahihirapan sila (With tomatoes, if the supply goes up, anyone who wants to earn a lot will have a hard time),” according to Mr. De Mesa.

In a final twist, Mr. De Mesa noted that three tons of the harvested Laguna tomatoes were actually brought to the DA’s TienDa market in Taguig and were offered at P20 per kilo. They sold out.

What do the economists, who presumably have seen it all, make of all this?

University of Asia and the Pacific (UA&P) Center for Food and Agribusiness executive director and professor Rolando T. Dy said supply disruptions “will happen,” and the general areas that need to be addressed include “imperfect information, logistics to market, area competitiveness, seasonality, climate change, etc.”

Marites M. Tiongco, dean of the De La Salle University (DLSU) School of Economics, who specializes in agricultural economics, said government agencies like the DA and the Department of Trade and Industry (DTI) must collaborate to manage supply and demand disruptions in agriculture.

Problema ngayon sa ating mga government agencies, wala pa siyang coordination, convergence. Produce, produce, produce, pero pagdating sa marketing, wala. Marami kang supply pero wala kang market (The problem with government agencies is that they have no coordination or convergence of policy. They are focused too much on production but the marketing functions are wanting. So when there’s a lot of supply, sometimes the produce has no markets),” Ms. Tiongco said, noting that the farmers in Laguna even used a high-yielding type of seed which was introduced by the DA.

“‘Yung role ng DTI, kahit ng DA, ay mag-provide sila ng postharvest facilities, ‘yung pwede mo silang ma-preserve (The DTI and even the DA have to play their part in providing post-harvest facilities to preserve the unsold crop),” according to Ms. Tiongco.

Ms. Tiongco said oversupply conditions do not happen only in Laguna but in other farming areas as well.

“Problem talaga iyan ng ating government kasi putol ang kanilang chain. Ang DA bahala sa increasing production, ‘pag nag high yield na siya, walang sasalo roon (The problem with the government is that the chain is broken. The DA is in charge of increasing production, but when it brings yields higher, there is nothing to absorb the crop),” she said. “It has been so many years na ganyan ang problema, bumabagsak ang price kasi sobrang dami wala namang pagbebentahan (The problem has been there for so many years — prices fall because supply is excessive with no markets to absorb the crop,” she added. “‘Pag harvest time, oversupply talaga siya, summer time usually iyon. ‘Di lang naman iyan nangyayari sa tomatoes, pati rin sa ibang commodities (During harvest, oversupply conditions are typical, usually in the summer. It happens with many commodities, not just tomatoes),” Ms. Tiongco said.

Ms. Tiongco held up as a model the trading posts of the Cordillera Administrative Region (CAR), which can take up the produce from nearby farmers, sparing them the need to find distant markets. She added that the relationship between farmers and traders needs to be regulated to avoid situations like the consignment deal that left the Kalayaan farmers on the hook for unsold goods.

Dapat may mga contracts man lang ‘yung traders and farmers, na ‘pag ‘di mo nabenta, you still have to pay (the farmer) kung ano ang minimum kung consignment siya (There need to be contracts between traders and farmers that guarantee minimum payment),” Ms. Tiongco said.