Agri execs maintain no overpricing on rice imports

July 6, 2009 9:16 am 

By Lilybeth G. Ison

MANILA, July 6 — Officials of the Department of Agriculture (DA) on Monday maintained that the government's rice import deal with Vietnam in 2008 was a "good deal" contrary to what critics say that there was overpricing in the purchase of the staple food.

DA Undersecretary Bernie Fondevilla said that based on the December 2008 rates, the Philippine government obtained a good deal at that time because the actual import price agreed upon by Manila and Hanoi was US$ 549.50, when the add-on costs like freight costs, bid and performance bonds, surveyor’s fees, and the cost of money arising from the Philippine government’s payment of the imports, not in cash, but in a deferred, credit basis of six months, were included.

The DA asserted that the prevailing rate in December last year, when the deal was finalized, ranged from US$ 456 to US$ 459 per ton Freight On Board (FOB), which was nowhere near the US$ 380 cost mentioned by critics.

"There was no US$ 380 per metric tons (MT) rice in December last year," said Fondevilla.

The transaction actually saved the Philippine government some P369 million (US$ 7.54 million) based on the prevailing February 2009 prices of the grain as posted by the Board of Trade of Thailand, which is the industry reference for the world market price, said National Food Authority (NFA) Administrator Jessup Navarro said.

Under the agreement, Vietnam will start delivering the imports in February.

Fondevilla and Navarro backed the position of Agriculture Secretary Arthur Yap that the said government-to-government transaction was a good deal because it was approved by the Private Sector Procurement Transparency Group (PSPTG) headed by lawyer Paterno Menzon, representing the Bishops-Businessmen’s Conference (BBC).

They said that the government had actually realized substantial savings totaling US$ 7.54 million or roughly P369 million from the transaction, considering that it was able to secure the imports at an average of US$ 549.50 per metric ton last December and the shipment was delivered starting in February, when prices already went up to US$ 656.15 for grains with five percent brokens, US$ 602.86 for 15 percent brokens, and US$ 539.11 for 25 percent brokens based on cost and freight (CFR).

The Philippines and Vietnamese governments agreed last December on the US$ 549.50 price based on these breakdown — US$ 645.15 forfive percent brokens; US$ 595 for 15 percent brokens; and US$ 535 for 25 percent brokens.

Fondevilla said that during the time that the transaction was finalized, the NFA had estimated the price per metric ton of rice in the world market at US$ 555.80, which already comprised the FOB projected price of US$ 491.68 at 25 percent brokens; a quality premium fee of US$ 5 per ton; cost of money at US$ 23.70 (computed at 0.9 percent per annum); the projected seven percent increase in world prices in the first semester of about US$ 32, based on the price trend during the last five years; a US$ 35 freight cost; and other expenses such as surveyors costs, bid and performance bonds and fumigation fees computed at US$ 0.42.

"There are add-on costs to the actual purchase price to ensure that such a huge volume of rice is delivered from the source — which is, in this case, Vietnam — to the Philippines and in consideration of the deferred-payment arrangement," said Fondevilla.

He said that against this US$ 555.80 projected price, the NFA was able to successfully negotiate a reduced contract price of US$ 549.50 per MT from Vietnam’s sealed offer of US$ 554 per MT, which proved that the transaction was a good deal considering the volume of imports involved, which was 1.5 million MT.

Reacting to a news item questioning the said transaction, Fondevilla and Navarro said it was incorrect for this news report to compare rice spot prices, which are quoted in cash, with bulk purchases like the one made by the NFA, without considering the volume and terms of payment for the agency-purchased stocks.

Fondevila said, "everything was aboveboard as this rice import transaction was backed up by documents and the Private Sector Procurement Transparency Group (PSPTG) was also part of the negotiation."

Menzon, who is the head of the PSPTG and the BBC representative in this private sector watchdog, was actively involved in the negotiations between the Philippines and Vietnamese governments on this import deal.

The other government agencies involved in the negotiation are the Department of Trade and Industry (DTI); and of Finance (DOF).

Fondevilla said that clear proof that the imports had proven beneficial for Filipino consumers "is the fact that despite being a lean season, the supply of rice has remained stable at affordable prices."

He noted that the NFA had departed from its previous practice of procuring rice imports through competitive bidding so as not to cause anew speculative price hikes and market instability as what had happened last year.

Fondevilla pointed out that the World Bank had also requested the Philippine government as early as April 27 last year to "explore alternative means to meet the country’s rice import requirements" considering that global rice prices may spike as a result of the practice by rice importers of resorting to "large-scale tenders."

"If so desired, the World Bank could support the government in exploring those alternative means," he said.

Navarro noted that the NFA at that time was buying more than a million metric tons of rice that necessitated a premium rate — as against spot prices that are quoted on volumes of just 5,000 MT to 10,000 MT — and was paying upwards of six months in credit terms.

Also, the purchase required the imposition of bonds and security fees to ensure delivery, he said.

Navarro said the transaction was a good deal at that time because Vietnam had agreed to sell the future contract as spot prices on a credit term of six to eight months.

At that time, he said the NFA had asked eight other countries if they were interested in entering into a government-to-government deal on rice imports, but only Vietnam had expressed interest in entering into an agreement with the government.

Navarro explained that the said import deal involved a transparent price negotiation process where the PSPTG sat in a committee with the DOF, DTI, DA and NFA that examined price quotes from the Thais, Vietnamese and other suppliers.

"In fact, this negotiation process has been positively cited by international watchers for helping stabilize supply and prices in the domestic market," he said. (PNA)

DCT/LGI

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