Philippines Economy in the Doldrums amid Food Crisis and Soaring Inflation

The Philippines economy has been reeling after facing a one-two punch of COVID-19 and the African Swine Fever (ASF). Inflation in the South Asian country has been soaring month after month and recently reached multi-year highs amid a food security crisis that has many Filipinos unable to afford enough staple grocery items like pork.

Making matters worse, quarantines are on again until early April after a sharp rise in coronavirus infections in regions like Metro Manila and provinces Bulacan, Cavite, Laguna and Rizal. Government officials have vowed to overcome these challenges and get the economy going again in 2021, but they have their work cut out for them.

philippines-inflation-chart-2021-bloomberg

Source: Bloomberg

Making matters worse, quarantines are on again until early April after a sharp rise in coronavirus infections in regions like Metro Manila and provinces Bulacan, Cavite, Laguna and Rizal. Government officials have vowed to overcome these challenges and get the economy going again in 2021, but they have their work cut out for them.

Food Crisis

Nearly 17% of the Filipino population is living in poverty, while close to two-thirds of households are grappling with food insecurity. The COVID pandemic and the ASF have only exacerbated this issue, as access to both food and employment have been in short supply. Inflation on meat prices, in particular, has been hovering in the double-digit percentage range in recent months, including 17.15% in January and 20.7% in February.

In particular, pork belly prices have soared to all-time highs during the pandemic, rising to more than 400 pesos (USD 8.25) per kilo, which is more than twice the usual price, after the ASF reached local hog producers, leading to culled supply. Chicken prices also increased as a result of greater demand. This trend fueled rising inflation in the country including five straight months of increases. Vegetable and fish prices are also fueling higher inflation.

President  Rodrigo Duterte imposed a 60-day price cap on pork at 300 pesos in Manila, in response to which the shelves emptied out and grocery stores stopped selling the food product. The country has declared that it will bolster imports as much as threefold to 162,000 tons, which has some officials crying foul, as this will come at the expense of the country’s domestic production. Senator Kiko Pangilinan says that the country stands to lose PHP 11.5 billion in revenue from the tariff break.

One pork seller that was impacted by the price ceiling, Jason Cendana of the Metro Manila-based Cartimar Market, was unable to comply, telling Nikkei Asia that it was “impossible.” Cendana explained how he pays his supplier between 275-310 pesos for pork shoulder and belly, which surpasses President Duterte’s order to cap pork prices to between 270-300 pesos. Meanwhile, chicken has a price cap of 160 pesos.

Filipino consumers are also struggling to afford enough meat. One local who is hurting is Anita Imperial,  a mother of six who was also featured by Nikkei Asia. After losing her job as a janitor, and seeing four of her children become unemployed from the fast-food and hotel industries, Anita is struggling to buy groceries for the family. If she does use her money to buy pork, she can only afford a quarter of a kilo. Instead, she is feeding her family bangus, or milkfish, and water spinach for lunch.

The Department of Agriculture in the Philippines has launched a P29 billion program in an attempt to salvage the swine industry. The program is focused on hog repopulation and getting hog producers back to work after 400,000 pigs were destroyed as a result of the AFS and severe weather. Typhoon Goni, also known as Super Typhoon Rolly, one of the strongest tropical cyclones ever, wreaked havoc on the country’s agriculture industry last year.

The Philippines government has proposed slashing the import tax on pork from 30% to 10%, which has the industry up in arms as it would cut into local hog production. The current tariff rises to 40% for any import quotas over 54,000 tons.

Economic Developments

Moody’s Analytics has said that the economy of the Philippines is in a “worrisome state.” The ratings agency blames rising inflation, a major production gap amid lockdowns, rising COVID-19 infections and a vaccine shortage for its dire outlook. Moody’s is predicting 6.3% GDP growth for the Philippines this year with plans to revisit its outlook due to the downside risks.

Meanwhile, the Philippines central bank has decided to keep the key interest rate unchanged at a record-low level of 2%, representing the third consecutive time this decision has been reached. Policymakers are worried about inflation, but they don’t find a need to pull back from an accommodative policy and tighten just yet.

Source: Twitter

In February, inflation in the country climbed to 4.7%, its highest level since 2019. By way of comparison, in February 2020, inflation hovered at 2.6%.  The central bank’s inflationary outlook for 2021 has been lifted from a threshold of 4% to 4.2%. Pricing pressures are expected to abate in the third quarter of this year, while the central bank is projected to hold rates where they are for the rest of 2021 as well. Inflation is estimated to return to the central bank’s target range in 2022, which they increased from 2.7% to 2.8%.

Glass Half Empty, Glass Half Full

The Philippines is no doubt experiencing a rough patch as a result of rising inflation fueled by exorbitant high food prices. Relief is expected in the latter half of 2021, and it cannot come too soon for a population that is mired in poverty. While one-quarter of the population is already stuck in poverty, those numbers were expected to rise as a result of the COVID-fueled economic slowdown coupled with a slowdown in remittances from abroad sent to households last year, according to The World Bank. Nearly 90% of Filipino families are losing sleep about their finances.

In a glass-half-full view, economists predict that as the lockdown restrictions are eased in the country and people return to work, the economy will begin to rebound and the poverty rate will decline. Acting Socioeconomic Planning Secretary Karl Kendrick T. Chua says that the country’s poverty rate will decline to 2018 levels this year and continue to drop in 2022. In a glass-half-empty view, however, at the current rate, the Philippines won’t reach full vaccination from the virus until 2023, Moody’s warns

By: Gerelyn Terzo of Sharemoney

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