Philippines Seeks Wheat Supplies After China Rebuff
By Clarissa Batino and William Bi
April 11, 2008
(Bloomberg) -- The Philippines said China turned down a request to supply wheat, adding to concern that the world faces a worsening shortage of staple foods that has already driven grain prices to records.

``China politely turned us down, saying they also need to stock up,'' Trade Secretary Peter Favila said in a telephone interview today. ``We've alerted all our trade attaches to find out where we can source wheat, so as not to cause shortages.''

The rebuff follows a struggle this year by the Philippines to secure supplies of rice, of which it is the largest importer. Wheat has more than doubled in a year to a record and rice is up 96 percent, triggering riots from Egypt to the Ivory Coast.

China ``is tightly controlling exports'' through permits and taxes to secure grain supplies, Xu Fan, an analyst at China International Futures Co., said by phone from Shenzhen.

Global food prices gained 57 percent last month from a year earlier, according to the United Nations' Food and Agriculture Organization, or FAO. There were ``very limited supplies'' of rice available given export restrictions, the FAO said April 2.

Grain-producing countries ``are definitely putting self interest ahead of exports because so much of disposable incomes gets spent on food,'' said Luke Chandler, senior analyst at Rabobank Group, based in Sydney.

The Philippine Star earlier reported that the government asked China to provide 200,000 metric tons of milling wheat, equivalent to about 10 percent of annual consumption. Favila said that his request to Beijing didn't specify any volume.

Grain Reserves

China has as much as 200 million tons of grain reserves, Premier Wen Jiabao said April 6. Still, China International's Zhu said that while 200,000 tons may be small relative to the stockpiles, China was unlikely to issue any export permits soon.

``We've asked Australia. I've also contacted the U.S. because the ambassador has assured us they will help with the supply,'' said Favila, adding that the Philippines was looking at coconut and vegetable flour as potential substitutes for wheat. ``Prices of bread will go up. Either that or the size would shrink.''

Rising food prices and the difficulties in gaining imports pose political and economic challenges for Philippine President Gloria Arroyo, who said this week she was ``leading the charge'' against hoarders.

``Domestic food inflation and food security are obviously very politically sensitive issues,'' said Chandler, the senior analyst at Rabobank. ``We're likely to see governments come in and place bans on exports.''

Wheat Exports

China started to tax wheat exports at a rate of 20 percent this year, according to a Dec. 30 statement from the Finance Ministry. The tax for corn and rice was set at 5 percent.

The U.S. ambassador to the Philippines pledged this week to ensure that the Asian country, a former colony, would be supplied with as much rice as the nation of 91 million needs. The country was ``assured absolutely'' of supply, Kristie Kenney said April 9.

Rice, the staple food for half the world, has almost doubled in price in the past year as China, Vietnam and India cut sales abroad and the Philippines tried to secure shipments. The price traded at a record $21.60 per 100 pounds on the Chicago Board of Trade on April 8.

Wheat futures in Chicago reached a record $13.495 a bushel on Feb. 27 on forecasts global demand will exceed output for the seventh time in eight years. The contract traded at $9.4725 today.

``In the early part of the year, people weren't talking about shortage,'' said Joric Nazario, treasurer at Philippine Veterans Bank in Manila. ``Now everybody's talking about it.''

India Scraps

India scrapped export incentives for rice, steel and cement to bolster local supplies and tame inflation, Trade Minister Kamal Nath said in New Delhi today.

Philippine inflation accelerated at 6.4 percent in March, the fastest pace in 20 months as food and fuel costs gained. Crude oil traded at a record $112.21 a barrel on April 9.

``Food inflation could surmount oil prices as the major threat,'' Vishnu Varathan, a regional economist at Forecast Singapore Pte., said in an interview. ``It could spill over to the early part of next year. This would be the making of a storm you wouldn't want to be in, especially with the global slowdown.''

The food-import situation ``would affect inflation,'' Favila said. ``But what good are the numbers if the people are hungry?''


Original article: Bloomberg
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