Are Cheaper Onion Prices in FDI-Friendly Asian Countries vs. the Philippines, Just Coincidental?
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| The Manila Times |
Right now, I'm still tackling people complaining about the rising costs of onion. It's official that the Philippines now has the most expensive onions in the world. How is it so? I decided to check The Manila Times based on my Google newsfeed. I'd like to share this excerpt from The Manila Times which addressed the cost of onions in the Philippines vs. other Asian countries:
THE retail price of red onions ranging from P550 to P700 per kilo in markets around Metro Manila on New Year's Eve made unpleasant headlines during the festive season. Red onion was sold at P90 to P120 in mid-2021 and P120 to P170 four months ago. Onion prices hover around P85 in Singapore, P55 in Vietnam, P35 in China and in India.
The onion was easily the inflation leader in 2022 and made Philippine onions the most expensive onion on Earth. Though the price is likely to drop significantly in the coming month as the annual harvest kicks in from February to May, and the Department of Agriculture has issued a P250 per kilo SRP and even threatened penalties for violators, the price volatility of a short-season crop this year should serve as a poignant reminder that the country's agriculture production system is not working well. Many industry players also question whether there are groups who are benefiting from a designed crisis.
The very excerpt above from The Manila Times reveals the drastic gap between the prices of red onion in the Philippines per kilo. Try to notice that Singapore sells at PHP 85.00 (and the country isn't known for its natural resources), PHP 55.00 from Communist Vietnam, PHP 35.00 in Communist China, and in India. Speaking of India, isn't onion supposedly even in higher demand there because of their food? I bet there are more Hyderabadis than there are Bicolanos in their respective countries. Both Hyderabadis and Bicolanos may have some similar dishes due to the use of coconut milk (especially with seafood) and I think shrimp paste is used in their dishes.
The Manila Times presents this supply chain analysis which I think many may have ignored:
Onions are cool season plants, taking three to four months from planting to harvest. The key risk to onion growth is insect infestation and excessive soil moisture triggered by heavy rain that facilitates anthracnose from fungal growth. The 2016 onion crop failure was triggered by Typhoons "Lando" and "Nona" damaging standing crops in Central Luzon in the last quarter of 2015 and the armyworm infestation in the first quarter of 2016. As a result, onion production in 2016 dropped one-third, and it was the only time that imported onion at 135,000 metric tons was more than the domestic production at 122,000 MT in a given year.
The country planted 18,391 hectares of onion in 2020, and the average farm size was around half-a-hectare. Nueva Ecija accounted for more than 60 percent of production, with Northern Luzon and Mindoro for the balance.
Onions are planted from September to December and harvested earliest in December and ending in June. While onion production is seasonal during the dry month, consumption is all year round. Hence a good inventory system is important to smoothen out the supply-demand pattern during the July to November period.
2010 was the last time the country ran a surplus in onions. It exported a net of 7,000 MT when domestic demand was pegged at 181,000 MT. Since 2012, the country has been a net importer. Moving from self-sufficiency to becoming a net importer is a microcosm in many agricultural products. Therefore, the issue of food security cannot be taken as a trivial issue.
The annual growth in production from 2011 to 2020 was 10.7 percent, while the annual planted area grew at 4.9 percent. The government praised the onion farmers for being more adaptive to modern practices compared with other commodity crop producers.However, the sector has faced subtle challenges since recovering from the 2016 crop failure. Foremost of which is the stagnating yield. Since yield peaked at almost 13 MT per hectare in 2014, the country never exceeded the figure and yield in 2010 is pegged at 11.13 MT/ha. The yield is much lower than the two leading producers that account for almost half of the world, China and India, which are 22.1 and 18.7 MT/ha. DA study noted that top onion-producing countries offer cheaper prices at $ 0.11/kg to $0.43/kg, while the Philippine domestic price averaged $0.79/kg in 2019. The productivity and price discrepancy make onion smuggling a tempting proposition.The government also noted that most traditional growing areas are degraded due to the excessive use of inorganic fertilizers. It is also reported that Central Luzon growers regularly lose 10 percent of their crop from armyworms and anthracnose annually.The shifting pattern of typhoon season to extend to the end of the year adversely affects the planting schedule of the onion farmer. Moreover, the delay in planting complicates the government's effort to bring importation to stabilize the market during the lean month. The inventory and price swing this year seems to validate that worry anecdotally.In addition to long-standing structural problems in the agriculture industry, onion growers today also face new challenges from climate change-induced production shocks that make new changes to the production system imperative.
Let's try to take a look at the Philippines vs. Singapore, Vietnam, China, and India
The Manila Times website does have one editor I feel is pretty much ignorant about economics. Yes, I'm referring to Rigoberto Tiglao. Sadly, the guy, while he does write some good articles, still believes that a nation must first self-industrialize before opening its doors to FDI. The late Lee Kuan Yew already debunked that statement in the book From Third World to First. I did write an article also about how accepting FDI can help with the rising prices of agricultural goods (read here). I did also point out with India's radical approach how it went from a protectionist state to a country that accepted FDI as part of its policy.
FDI India may also tell us why the prices of onions may be cheaper in India even with the obvious high usage due to their cuisines:
Role of FDI
Foreign direct investment (FDI) provides the most favorable way to boost a company or a sector. The agricultural industry is among the most crucial segments when it comes to foreign investments since India is predominantly an agrarian economy.
To keep the Indian agricultural system up-to-date with the rest of the world, foreign capital inflow is essential because of the following reasons:
To take advantage of modern scientific and technological advancements – As the world progresses at breakneck speed, our farmers and the farming capacity of the country need to match up to the world. FDI helps in benefiting from the latest scientific research and farming technologies.
To enhance the employment in the segment – As more people are employed in the sector, the agricultural prowess will grow and lead to countries worldwide looking towards the nation for farm products.
To increase exports – The infusion of foreign capital results in the increased productivity of the sector and establishes the country as a leading exporter. India’s total agricultural and related commodities exports are valued at $41.25 billion for FY21.
To provide access to new technologies – With the fast-moving technological age, farmers must be provided with contemporary technologies to help grow production.
I also decided to get more information about Communist Vietnam's agriculture. Not surprisingly, FIA Vietnam also shares this thought that FDI (written last 2018) also plays a role in its agriculture:
Over the past few years, local and foreign companies have been actively implementing high-tech agricultural projects in Vietnam, but many of them have yet to receive special incentives from the government. For instance, TH Group plans to invest hundreds of millions of dollars in high-tech agricultural projects nationwide, with a focus on producing fresh milk, organic vegetables, herbs, and fruit.
The group is currently developing its $53 million high-tech dairy farm in the central province of Phu Yen, while also developing two other dairy farming and fresh milk processing facilities in Ha Giang and Thanh Hoa provinces with the total investment capital of $287 million.
In another case, steel maker Hoa Phat Group has entered into egg production by developing two chicken farms in Phu Tho and Dong Nai provinces.
Nafood Group also kicked off the construction of a $9 million facility in the northern mountainous province of Son La to process export-oriented vegetables and fruit, including condensed passion fruit.
Nguyen Dang Quang, chairman of Masan Group, asked the government urgently to create policies to manage and develop near-shore water resources. To unlock the full potential of Vietnam’s long coastline, the Vietnamese government should formulate a clear strategy with an emphasis on sustainable farming.
Over the past years, foreign investors have also come to Vietnam to engage in large-scale agricultural projects. These include Cargill, CJ, CP, and Mavin Austfeed. Foreign direct investment (FDI) in the country’s agricultural sector, which holds only 1 per cent of the country’s total registered FDI capital, is largely focused on producing animal feed and processing farm produce.
The Vietnamese agricultural sector currently has a total of about 49,600 domestic and foreign-invested enterprises.
One can see a big difference. Vietnam has had its focus on agriculture even if it means accepting FDI. True, Vietnam only has one percent in agriculture in terms of FDI. However, better accepting FDI (without unnecessary restrictions in regards to shares) has pretty much allowed the local farming to be improvised with better technology. The use of better agricultural methods had helped Vietnam cope up as it's also a very disaster-prone country.
I could really see some trolls on social media saying, "But the Philippines isn't Vietnam or India!" Well, who says there's only one model to learn from? Learning how Vietnam and India cope with natural disasters can help the Philippines better. The Philippines is also flood-prone and typhoon prone like the two countries. Why can't we learn from their better management? Is it because of the belief in Filipino uniqueness? Is it the belief that the Philippines is so unique it can't learn from other countries so it should self-industrialize instead? Those beliefs have persisted for several decades. I haven't seen it bear much fruit. It's almost comparable to Mao Zedong's failed Great Leap Forward. It became a great leap forward to disaster.
If only the Philippines didn't implement that inept Filipino First Policy, I believe the Philippines could've coped with the issues that destroyed the onions. Don't tell me that the Vietnamese and Indians don't face crop destruction every time they are hit by natural disasters? Learning from these two countries is applicable because these countries face it a lot. What's more annoying is that when I recommend importation to help fight inflation then the naysayers butt in. The naysayers say something like, "But it will kill our farming! The solution is to increase wages, reduce the prices of goods, give PHP 10K handouts for all." Please, such solutions will kill farming because farmers will be forced to sell at a loss--something that could've been avoided if importation was done during scarcity seasons. Besides, importation of agricultural products can help the local manufacturers produce their local goods during those times. It would be more practical to use onions from India to make sisig if ever onions from the Philippines are scarce. Once again, where's the knowledge of basic economics?
This is what I want to ask. Is it just a coincidence? I think not since the data has shown that India and Vietnam are FDI-friendly with their agriculture. FDI can only be damaging in the absence of restraints such as environmental laws. Meanwhile, a local company can be destructive while an FDI can be environmentally friendly. It's not about whether something is local or imported. It's all about if something can help the locals or not.
References
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Websites
https://www.manilatimes.net/2023/01/08/opinion/columns/philippine-onion-most-expensive-in-the-world/1873211
"WHY IS FDI IMPORTANT FOR THE AGRICULTURAL SECTOR" (December 23, 2021)
