No simple solutions to food price hikes

By Neo Chai Chin and Alicia Wong, TODAY
02 April 2008

SINGAPORE: In theory, importing food from many sources sounds like a good way to keep rising prices in check — apart from hedging one's bets against supply disruptions due to, say, natural disasters.

But reality is rarely so simple.

With food prices going up around the world, economists point out - diversification will not be enough to avoid inflation in Singapore, which imports about 90 per cent of its edibles.

The theory works only if there is a "disconnect between two markets", said Forecast's economist Vishnu Varathan. For instance, if Australia is facing a drought, dairy prices here can be kept stable if imports are still coming in from other regions.

That's not the case with the brewing Asian rice crisis, however. Noting shortages reported from Cambodia to the Philippines, rice importer Hong Lian Gim Kee said: "How can you negotiate prices?"

On Tuesday, the World Bank said that inflation poses a bigger challenge to East Asia than the current credit crisis does. For one, it has led to higher fuel prices — which leads to higher freight costs that could negate cost-savings from food sourced further afield, said a spokesman from the Singapore Cereal Oils Foodstuffs and Native Products Import and Export Association.

Said Mr Varathan: "We can get some limited relief from inflation by changing consumer patterns, but unless we have a backyard to plant some crops, there's little we can do."

But, how far are consumers here willing to adapt?

Importer See Hoy Chan's operations manager E K Lim believes "people want higher quality rice". For instance, Vietnamese rice is often too rough, and Chinese, Australian and American rice too sticky for the fussy Singapore palate.

NTUC FairPrice's director of integrated purchasing Tng Ah Yiam said sales of its house-brand rice from Vietnam have doubled since its launch last October, partly because it is 20-per-cent cheaper than Thai rice.

Yet there are those like housewife Pauline Wong, 59, who would "switch to a cheaper brand of Thai rice" easily but fuss over the standards of Vietnamese rice. It is difficult for consumer tastes to change within a short time, said associate research fellow Ng Sue Chia of the S Rajaratnam School of International Studies.

Likewise, diversifying food sources may also take time. Sheng Siong supermarket will "definitely" look for other rice suppliers, but it could take years to build a working relationship if mutual benefits cannot be found, said its international business development deputy general manager Wong Heng San.

Conversely, it only took two to three months to form a working relationship with Thailand's rice suppliers as the supermarket has worked with them before.

Meanwhile, what Singapore can do seems to have already been done.

According to the Ministry of Trade and Industry (MTI), the government requires all white rice traders to stockpile twice their monthly import quantities. The growth dividends and GST credits to be paid out later this year will also help to offset inflation, an MTI spokesperson told TODAY.

Also, said Assistant Professor Tomoki Fujii of the Singapore Management University's School of Economics: "With little control over the price of food it buys from other countries, the government can let the Singapore dollar appreciate against other currencies to mitigate inflation -- which is indeed being done."

FairPrice – the island's largest supermarket chain -- said it tries to help consumers by being the last retailer to adjust prices. While it raised the prices of three in-house rice brands last Friday by 10 to 15 per cent, it eliminates middlemen costs by importing directly from countries like Thailand and Vietnam, said Mr Tng. FairPrice is also studying setting up budget outlets for the needy, possibly next year.

Sheng Siong supermarket – with 21 outlets – imports some of its rice directly, and will keep promotional prices for rice constant until stocks run out.

Prof Fujii suggested coping with short-term price fluctuations by making long-term contracts with food-exporting countries.

Freezing food prices, like what Thailand is considering, would create a "disastrous situation" with insufficient food to meet demand. But increasing food subsidies for the poor could be considered, he said.

Prof Fujii also mooted the idea of imposing a tax on restaurants for food wastage, with the money going to the poor. Households could also be taxed according to how much waste they generate. But such an idea would be hard to implement, he admitted. - TODAY/sh