MANILA, Philippines – Hundreds of trucks and mini-buses blocked roads leading to Malacañang Thursday to protest soaring prices of petroleum products.
About 50 tricycle drivers joined the long convoy of trucks and mini-buses.
The protest action caused a monstrous traffic jam for about an hour on the streets leading to Malacañang and the University Belt and the areas around them.
It was staged by members of militant transport groups Alliance for Concerned Transport (ACT-Now!) and Pagkakaisa ng Manggagawa sa Transportasyon (PMT).
Supt. Jimmy Tiu, station commander of Manila Police District Station 8, said some 80 tractor and trailer trucks and 50 tricycles blocked Bustillos Street in Sampaloc.
A phalanx of anti-riot police officers prevented the convoy from reaching the country’s seat of power.
The protesters started from North Harbor Pier and planned to bring the caravan to the historic Don Chino Roces Bridge (formerly Mendiola) near Malacañang.
PMT convenor Dante Lagman said the protesters wanted to urge the government to act on the continuing price increases of petroleum products.
“It’s the government’s job to protect its people,” Lagman said. “If the government wants to address sincerely the global crisis on oil, it must implement measures that would immediately trickle down to the masses, like lifting the 12 percent Reformed Value Added Tax (RVAT) on all oil products.”
In addition to the lifting of the RVAT, the PMT also suggested a moratorium on oil price increases and the repeal of Republic Act 8479 or the Oil Deregulation Law.
Police said the protesters planned to have a brief program on Mendiola Bridge but were prevented by the MPD, which set up a barricade.
After negotiations, anti-riot policemen allowed the militant groups to use the bridge to reach Legarda Street.
Leody de Guzman, national president of the Bukluran ng Manggagawang Pilipino (BMP), a member of ACT-Now!, said it would not be right to increase fares just to alleviate the worsening condition of transport workers.
“While fare increases add to the earnings of a transport worker, it decreases the people’s purchasing power. Its effects would be detrimental to ordinary consumers,” De Guzman said.
The protesters, carrying placards and streamers, asked President Macapagal-Arroyo to provide more subsidies to the poor.
Gasoline prices in the Philippines have risen 14 times since the start of the year, for a total increase of about 24 percent. The pump price for unleaded gasoline is now about P55 per liter from P44.50 in January.
Lagman said the transport sector could not afford to celebrate Philippine Independence Day, which was marked Thursday, because of the situation.
Inflation has surged in the country in recent months.
The Arroyo administration announced plans to increase subsidies to the poor, providing them access to cheaper rice and medicines and distributing P500 cash to two million people to help pay electricity bills. With a report from Reuters.
Tina Santos
Philippine Daily Inquirer
First Posted 00:25:00 06/13/2008
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Thursday, June 12, 2008
THE GMA GOVERNMENT HAS AGAIN BETRAYED THE
The continuing and unabated oil price hikes have definitely breached the psychological level of the Filipino people. Generally, all the people and the business sector have been complaining of weekly price spikes, many of which are just announced overnight. It is very sad to note that while people are infuriated of these uncontrolled price hikes, the GMA government remained unperturbed and adamant in intervening of this hapless situation. On the other hand, oil companies continue to rake super profits while the people suffer from the effects of high prices of oil. Record shows that between 2006 and 2007, Petron earned P6.02 Billion and P6.4 Billion respectively while Shell Philippines earned P 4.12 Billion last 2006 and P6.36 Billion in 2007. Adding to the people’s heavy burden of high oil prices, is the 12% R-VAT collected over and above the prices of the oil products. Last 2006, of the total oil sales of P446.59 Billion of the three big oil
companies Petron(P212. 82Billion) , Shell(P157 Billion), a total of P 53.5908 Billion in taxes went to the government.
Even though the oil price hikes is a global phenomenon, there is a particular distinction of the oil price hike situation in the Philippines. And at the center of this is the government’s R.A. 8479 or the DOWNSTREAM OIL INDUSTRY DEREGULATION LAW which replaced the state regulation set-up of the oil industry. While the government has promised the people that the shift from a regulated oil industry to a deregulated set-up will bring about lower prices of oil due to competition, it never came to fore. Even before the outbreak of continuing oil price hikes, the public has never been shielded by predatory pricing happening in the deregulated oil industry. A problem that has been persisting even when the oil industry is still regulated. It is very clear and obvious now that government has rid itself of the burden of governance. It abandoned its state and sovereign functions that will prohibit the continuing existence of the cartel nature of oil
industry so that perfect competition will happen. It defaulted from its mission of protecting the consuming public from the oil companies’ greed by allowing the retention of the current profit margins oil companies through the automatic pricing mechanisms.
Urgent measures to address this problem are very much long overdue and wanting. We, in the labor and transport sector under the ACT NOW will stage series of campaigns to start today June 12, to hold accountable this GMA Regime of the subsequent series of economic mess that plunges our nation to poverty and hunger. Likewise we also compel this government to decisively address and resolve the problem of continuing oil price hikes by implement immediately the following measures:
1) Repeal the Downstream Oil Deregulation Law or the RA 8479 of 1998 and immediately institute price control and price ceilings based on the enforceable automatic pricing formula that recognizes market realities but protects the public from unjust and predatory pricing. Implement a moratorium of price increases of oil products while price control and ceilings are still to be studied and determined.
2) Immediately scrap the 12% RVAT levied on oil products. We still strongly maintained that RVAT is still out rightly regressive. It is but very much reasonable that during this period of economic crisis, the implementation of 12% RVAT should be put to a stop.
3) Level the playing field by dismantling the cartel nature of the oil industry. Liberalizing entry of other oil companies is not an assurance for real and perfect competition to happen.
4) Set – up an independent, accountable and transparent energy regulatory body which will be tasked of pricing and supply determination.
5) Develop a comprehensive program for promoting the optimal use of energy and the development of alternative, renewable and sustainable energy resources.
June 12, 2008
companies Petron(P212. 82Billion) , Shell(P157 Billion), a total of P 53.5908 Billion in taxes went to the government.
Even though the oil price hikes is a global phenomenon, there is a particular distinction of the oil price hike situation in the Philippines. And at the center of this is the government’s R.A. 8479 or the DOWNSTREAM OIL INDUSTRY DEREGULATION LAW which replaced the state regulation set-up of the oil industry. While the government has promised the people that the shift from a regulated oil industry to a deregulated set-up will bring about lower prices of oil due to competition, it never came to fore. Even before the outbreak of continuing oil price hikes, the public has never been shielded by predatory pricing happening in the deregulated oil industry. A problem that has been persisting even when the oil industry is still regulated. It is very clear and obvious now that government has rid itself of the burden of governance. It abandoned its state and sovereign functions that will prohibit the continuing existence of the cartel nature of oil
industry so that perfect competition will happen. It defaulted from its mission of protecting the consuming public from the oil companies’ greed by allowing the retention of the current profit margins oil companies through the automatic pricing mechanisms.
Urgent measures to address this problem are very much long overdue and wanting. We, in the labor and transport sector under the ACT NOW will stage series of campaigns to start today June 12, to hold accountable this GMA Regime of the subsequent series of economic mess that plunges our nation to poverty and hunger. Likewise we also compel this government to decisively address and resolve the problem of continuing oil price hikes by implement immediately the following measures:
1) Repeal the Downstream Oil Deregulation Law or the RA 8479 of 1998 and immediately institute price control and price ceilings based on the enforceable automatic pricing formula that recognizes market realities but protects the public from unjust and predatory pricing. Implement a moratorium of price increases of oil products while price control and ceilings are still to be studied and determined.
2) Immediately scrap the 12% RVAT levied on oil products. We still strongly maintained that RVAT is still out rightly regressive. It is but very much reasonable that during this period of economic crisis, the implementation of 12% RVAT should be put to a stop.
3) Level the playing field by dismantling the cartel nature of the oil industry. Liberalizing entry of other oil companies is not an assurance for real and perfect competition to happen.
4) Set – up an independent, accountable and transparent energy regulatory body which will be tasked of pricing and supply determination.
5) Develop a comprehensive program for promoting the optimal use of energy and the development of alternative, renewable and sustainable energy resources.
June 12, 2008
Wednesday, June 4, 2008
ASIAN PEOPLE'S DECLARATION ON THE FOOD CRISIS
Introduction
The global rise in food prices is felt acutely in the Asia-Pacific region, with greater impact on net food importing countries. Food prices have increased sharply since 2005 but have surged dramatically since 2007, led by the dairy sector registering an 80% price hike, followed by oil at 50% and grains 42%. In more recent months the price spikes have been more pronounced in grains and oil. In the Philippines, rice price rose to 72% since January this year, while in Pakistan wheat price rose to 66% since January 2007, and the price of rice basmati rose from Rupees 60/kilo in June 2007 to Rs 110/kilogram in May 2008
In Indonesia, the price of cooking oil doubled from 6,000 to 12,000 rupiah per kilogram and tofu price increased by 50%. In India, the price of milk increased 11% more than last year and edible oil prices soared to 40% over the same period.
With as much as 40% to 75% of the population in these countries subsisting on less than US$ 2 per day, the upward spiral in food prices has meant huge reduction in the poor's welfare and exacerbated food insecurity of a growing proportion of their population. Moreover, as evidenced by the sporadic protests induced by the rising food prices, the situation may yet lead to greater social and political instabilities in many countries in the region.
Food Crisis and Trade Liberalization
Many analysts have pointed to the sluggish growth in global food production, vis-à-vis the rapid population growth, compounded by crop failures due to extreme weather-related and climate variability as one of the main reasons for the rise in food prices. Moreover, food production shortfalls have been linked to competing use of land, labor and water, driven by demands from the export market as well as investment priorities particularly in the extractive industries and more recently in the agrofuels market. At the demand side, policy analysts have cited the changing consumption patterns in emerging economies like China and India which saw dramatic increases in consumption of livestock and dairy products that in turn led to the rapid increases of price in feedgrains.
However, what has been missing so far in the analysis of many international institutions such as FAO that have registered their growing concern over the problem are the policies that have contributed to the spiralling prices of food and made developing countries very much vulnerable to global price and supply shocks.
The policies of trade liberalization, privatization and deregulation in agriculture imposed upon developing countries via the structural adjustment policy (SAP) package of the IMF-World Bank and entrenched further through the WTO Agreement on Agriculture have definitely reduced the capacity of these countries to feed their increasing population. In the last two decades or more, most developing countries have abandoned their policy of food self-sufficiency in favor of market-oriented food security and the promotion of agribusiness for exports. This has made them ever more dependent on the international market to meet their domestic food consumption, with serious impacts on their long-term food security and food sovereignty.
As a result of these policies, many Asian countries face the following:
1. Declining grains stocks- current stocks are at the lowest since 1988
The Philippines is the number one rice importer in the world. In the last six years, it has been importing an average of more than 1 million metric tons of rice. Its rice self-sufficiency has been at a low of 88%, in recent years, while before it acceded to the WTO, it had a 98% self-sufficiency. Its rice stock levels remain precariously low at below 20% in the last 3 years.
In India, wheat and rice stocks have come down over the past three years because of low production and exports.
2. Declining government support and subsidies in agriculture
Agriculture subsidies in the 80's and 90's which had the effect of raising agriculture productivity and outputs of developing countries and led them to achieve remarkable levels of food self-sufficiency have been either reduced or withdrawn in many countries. Indonesia, for example, achieved rice self-sufficiency in 1985 through aggressive domestic support and public spending but was forced to withdraw its fertilizer subsidies in 1997 under IMF supervision causing its rice output to plummet down from 51.9 million metric tons in 1996 to 49.24 million metric tons in 1998.
Key agriculture support programmes in irrigation and infrastructure had considerably weakened with irrigation development both in the Philippines and Indonesia halted to their 1985 implementation level. In recent years, only minor repairs have been initiated while no new construction have been made, despite the fact that only half of the total potentially irrigable lands in both countries have been serviced. In Bangladesh, the delivery of irrigation water has been privatized. Credit support and other government incentives likewise have been redirected towards promoting high value commercial crop production in these countries.
3. Increased privatization of agriculture support services and state trading enterprises
The dismantling and privatization of state trading enterprises and food marketing boards had not only led to declining farmgate prices and thus decreased incentives for small farmers to raise their production but also to the rise and consolidation of big agriculture trading monopolies that wield considerable control in domestic trade and production, by controlling price and supply of both farm inputs and output.
Bangladesh has, in the past two years, increased the participation of the private sector in rice production, especially in irrigation and in the production, import and marketing of rice seeds, including hybrids.
Nepal's rice marketing is almost entirely privately run. The Nepal Food Corporation now procures only for distribution in the deficit zones in the hilly and mountainous parts of the country and for reserves.
4. Shift in food policy to agribusiness strategy
Under the 1999-2003 National Guidelines, Indonesia adopted an agriculture development strategy revolving around an agribusiness approach. Similarly, the Philippines government's 10-point agenda for national development has agribusiness promotion as a top priority. The same with Bangladesh, as government seeks to diversify crop production to high-value crops for exports.
Agribusiness Expansion
The agribusiness strategy has been increasingly adopted by most developing and least developed countries in the region, largely facilitated by increased economic integration and trade liberalization. While subsistence and small-scale farming devoted to food production has received minimal public spending, government priorities have turned to promoting and supporting large-scale commercial crop plantations owned and operated by the landowning elite and transnational companies. The emphasis of the agriculture policy has shifted from ensuring adequate supply of food domestically to meeting the demands of the export market. In the Philippines, the most productive lands in Mindanao, which is the country's food basket is devoted to export crops like coconut, oil palm, banana, pineapple, and flowers. Yet, the incidence of hunger and malnutrition is highest in this region. Rice self-sufficiency had dropped from 90 percent in 1995 to 66 percent in 2000. Recently the Philippine government announced that it will target the further development of agribusiness in 2 million hectares of land in Mindanao. Indonesia's agriculture development strategy, which in recent years has revolved around an agribusiness approach has been instrumental in converting lands and state plantations devoted into food crops into oil palm and other crops for exports. Pushed by the recent boom in agrofuels market, millions of hectares of prime forest lands are being cleared for the establishment of oil palm plantations, Similarly, Bangladesh' food and agriculture policy since the 90's have sought the diversification of production away from single crop and the promotion of more profitable and efficient agricultural production system, read: agribusiness.
Driving this shift in policy is the powerful global agriculture/ food business, which is next only to the pharmaceutical industry. Even the World Bank in its World Development Report 2008 has noted the powerful role of agribusiness in shaping policies and political affairs. The policies of trade liberalization, deregulation and privatization for the last two decades have enormously strengthened and expanded the powers of agri-food TNCs. At present, only five companies control about 90 percent of global grain trade and only six corporations control ¾ of the global pesticides market. Control of TNCs on the seeds market through patenting and the dissemination of technology packages has enabled these companies to control agriculture production in the South. WTO agreements as well as bilateral trade treaties have enormously expanded the control of TNCs on agriculture and food supply chain.
TNCs have also expanded their investments in export-oriented cash crop production. In the Philippines, for example TNCs like Dole, Del Monte, Japanese Sumitomo, Cargill, etc. are operating large plantations devoted to banana, pineapple, coconut, palm, etc.
Agrofuels and the Food Crisis
The demand for agrofuels and the emerging agrofuels market have boosted the production of fuels from food crops. Commodities like sugar, corn, soya, palm oil, cassava are being grown for production of agrofuel. Moreover the policy environment for biofuel investments is also pushing demand for these commodities.
In a condition of tightening global food supply worsened by recent drops in global output of major food crops due to droughts and climate-related impacts, the increasing demand for agrofuels will certainly create the environment for rising food prices. Even the Food and Agriculture Organization (FAO) has pointed to the culpability of agrofuels production in the recent rise of food prices.
Both the US and the EU are leading the rapidly escalating global demand for agrofuel use. Their policies for mandatory blending of agrofuel in petrol and tax exemptions for use of renewable resources as fuel as well as the increasing rise in oil prices are all driving the expansion of markets for agrofuel. The US Energy Policy Act of 2005 for example mandated substitution of 7.5 billion gallons of gasoline per year by agrofuels. This has in turn resulted to huge production of corn-based bioethanol of 6 billion gallons in 2006-2007, accounting for about 20% of US corn outputs in 2006 and is targeted to increase further to 9.7 gallons in 2010-2011, representing an estimated 28% of US corn outputs in 2010.
In the EU, the 2003 directive on the promotion of the use of agrofuels in transport set a reference target of 2% agrofuel use in road transport for 2005 and of 5.75% for 2010.
The policy environment in these countries certainly is driving the huge investments in agrofuel plantation and production in the Asia-Pacific region. Similarly developing countries have fashioned their energy policy in line with the global push for agrofuels. In Indonesia, the government has set the target of meeting 17 percent of the country's energy requirements from renewable sources by 2025 and in 2007 it established a National Team for Biofuel Development (TimNas BBN) to develop alternative energy supplies from crops such as palm oil, cassava, jatropha and sugar cane. According to the government's biofuel development strategy, the country expects fresh supplies from a newly opened 750,000 hectares of sugar cane and 1.5 million hectares each of cassava, jatropha and oil palm plantations by 2010.
The Indonesian biofuel policy implies that the land under present palm oil cultivation will expand from the current six million hectares to 20 million has. by 2020. Surely, this will have tremendous impact on domestic food production, as well as the state of the country's forests and agricultural resources including water. This is extremely worrisome since Indonesia is currently a net importer of soybeans (two million tons), corn (one million tons) and sugar (1.5 million tons). Likewise, the Philippines is a net food importer.
Meanwhile, domestic agribusiness corporations in partnership with TNCs will reap windfall profits from agrofuel production and trade.
Finance markets
The tight supply of food internationally, as well as forecasts of further constricting supply owing to a host of factors including climate change impacts has fueled speculation in agriculture commodity trading. Big domestic traders and exporters have engaged in hoarding to manipulate prices to their advantage. The response of many net food importing countries to replenish their depleted stocks in the face of soaring international prices has also triggered further speculation.
However, the recent surge of investments in agriculture commodities triggered by the debacle in global financial markets that have reduced returns from bonds, equities and other financial assets as compared to commodities has also contributed to the increased volatility of food prices (ADB Paper on Soaring Food Prices, 2008). Meanwhile FAO posited that the abundance of liquidity particularly in emerging economies, coupled with the low interest rates and rising petroleum prices has also led speculators to diversify their portfolio to include agriculture market based derivative trading to get increasing returns from their investments.
The April 17, 2008 tender for rice imports offered by the Philippine government clearly revealed a growing speculation in the international rice trade leading to raising the commodity's spot price volatility. Thus, from an average contract price of US$700/metric ton of rice in mid-March, the Philippine government got offers of more than US$1,100/metric ton, effectively raising the price of rice by 60%. Some analysts have pointed out that the Philippine government's series of tenders have actually drove the international price of rice to its highest level in several years. In the said April tender, six suppliers, including four trading houses, offered to supply a total of 195,000 tons from Thailand. Trading in rice futures is very recent in Thailand. The food crisis is hitting the poor the hardest.
Asia is home to more than 1 billion poor and near-poor. Food expenditures comprise 60% of the poor's total expenditures in the region. Thus, soaring food prices will considerably reduce their purchasing power, resulting to drastic decline in their food intake as well as reduced expenditures in other basic necessities such as education and health. In the Philippines, official statistics reveal that 40% of the population fall below the official poverty line, while in Indonesia, 59% of the population are poor. Food shortage and price rise will surely increase the ranks of those in absolute poverty and deepen poverty of low income groups like farmers, settlers, artisanal fishers, indigenous peoples, workers and urban poor. It will likely increase the vulnerability of women and children.
Addressing the Food Crisis From the Perspectives of Poor Farmers, Workers and the Urban Poor
As oil prices continue to soar and as more of the same formula of neo-liberal policies are being peddled by national governments, the WTO and international financial institutions to address the food crisis, there may not be temporary relief in sight particularly for the most affected section of the population. In the Philippines, the government has lifted the tariffs on rice imports and is proposing the removal of the importa quota and privatizing rice importation. Indonesia has lifted its tariffs on soya with disastrous impact on farm prices of domestic soya. In most countries affected by the crisis, food subsidies have been implemented targeting the lowest income groups, while cash have been distributed to a few households.
We believe all these measures will not make the poor less vulnerable to the crisis, instead they may be even counter-productive as the private sector may further tighten their control on grains and food trading and thus, jeopardize the people's access to adequate and affordable food.
We believe that now more than ever, people and governments should recognize and adopt food sovereignty as a guiding policy framework. Protecting small farmer's livelihoods, creating a vibrant local economy based on the linkages of farming with off-farm activities and protecting and promoting agriculture biodiversity will create the conditions to lasting solutions to the food crisis and rural poverty.
In the short-term, we call for the implementation of the following emergency measures:
Institute price control on food and basic commodities to avert the further spike in food prices due to continued global food uncertainty and oil price hike;
Provide increased and comprehensive subsidies to small rice farmers, including input and credit subsidy and price support this coming planting season;
Immediately rehabilitate irrigation systems through a food-for-work scheme and establish post-harvest and marketing facilities in key production areas;
Increase wages of workers to recover the depreciation of their current wages due to inflation;
Maintain quantitative restrictions or import controls on grains and other food staples;
Strengthen regulation of state trading enterprises over domestic and external trade to prohibit transmission of soaring international prices to the domestic market;
Investigate and prosecute traders, agribusiness and commodity speculators involved in hoarding and speculating which contributed to the crisis;
Stop conversion of lands devoted to food production to other uses like biofuels, commercial crops, real estate, etc.
Stop payment of onerous debts by the government to free-up needed resources to finance agriculture support programs to increase productivity.
Stop free trade and investment agreements that will further liberalize agriculture markets such as the ASEAN-EU, ASEAN-Japan,
Impose a moratorium on countries' national legislation promoting the production and use of biofuels.
Promote sustainable and ecological farming.
In the medium-term, there is a need to institute a coherent agricultural and food policy and strategy embedded in a national development strategy that takes into account the strategic role of agriculture in securing food for domestic population and the important linkages of agriculture to rural and broader national development. Food sovereignty should be the over-arching framework of national food policy. Thus, the absolute trade liberalization policy adopted by national governments should be abandoned and agriculture re-oriented from one that is external market-driven to one that seeks to secure first the country's food needs.Public investments in irrigation and infrastructure support should be expanded, along with increased spending in farm input subsidies. Moreover, institutional reforms must be hastened. A comprehensive land and asset reform that grants and secures the poor landless peasants' and indigenous peoples' ownership and claim on their land and natural resources should be completed in the fastest period possible. National and local programs for gender and women empowerment must be in-place. Rural finance mut be made available to poor farmers, instead to agribusiness to encourage more diversified economic activities in the rural areas. Cooperatives or community associations should increasingly take part in the marketing and distribution of commodities and inputs to enable poor farmers to gain greater value from farming and other off-farm ventures. Finally, scientific, farmer-based and sustainable technologies are needed to raise food production and improve farm productivity as well as promote agro-biodiversity. In the context of worsening impacts of climate change on agriculture, production systems that enhance the environment and protect and conserve soil as well as forest resources should be prioritized.
National governments should review their commitments to the WTO. There should be no new round of multi-lateral trade negotiations until the ills and imbalances of the present international trading regime are dismantled and poorer countries' ability to become food self-sufficient to protect them from further food price and supply volatilities has been regained. The national governments must be able to institute support measures for small farmers without reprise from the WTO and the IMF-WB. Moreover, negotiations for bilateral and regional free trade agreements should be immediately stopped.
We call for the enforcement of international legal instruments protecting the people's basic human rights including their social and economic rights and to work towards a new international trading regulation that will curb developed countries' practice of food dumping, eliminate TNC control on agriculture and food and allow greater flexibility for poorer countries to exercise their right to food sovereignty and food security.
We are committed to mobilizing creative people's action to bring about these policy changes both nationally and internationally and to engaging our national governments as well as international institutions in various events such as during the FAO Summit on the Food Crisis and Climate Change on June 3-5, 2008, the ASEAN-EU Meeting in Manila in June 23-25, SAARC Meeting In Colombo, Sri Lanka, the G8 Summit in July in Hokaido, Japan and the High Level Conference on Aid Effectiveness in Ghana in September 2008.
ASIA-PACIFIC NETWORK FOR FOOD SOVEREIGNTY (APNFS)
22 May 2008
Friday, May 16, 2008
Manufacturing a Food Crisis
When tens of thousands of people staged demonstrations in Mexico last year to protest a 60 percent increase in the price of tortillas, many analysts pointed to biofuel as the culprit. Because of US government subsidies, American farmers were devoting more and more acreage to corn for ethanol than for food, which sparked a steep rise in corn prices. The diversion of corn from tortillas to biofuel was certainly one cause of skyrocketing prices, though speculation on biofuel demand by transnational middlemen may have played a bigger role. However, an intriguing question escaped many observers: how on earth did Mexicans, who live in the land where corn was domesticated, become dependent on US imports in the first place?
The Mexican food crisis cannot be fully understood without taking into account the fact that in the years preceding the tortilla crisis, the homeland of corn had been converted to a corn-importing economy by "free market" policies promoted by the International Monetary Fund (IMF), the World Bank and Washington. The process began with the early 1980s debt crisis. One of the two largest developing-country debtors, Mexico was forced to beg for money from the Bank and IMF to service its debt to international commercial banks. The quid pro quo for a multibillion- dollar bailout was what a member of the World Bank executive board described as "unprecedented thoroughgoing interventionism" designed to eliminate high tariffs, state regulations and government support institutions, which neoliberal doctrine identified as barriers to economic efficiency.
Interest payments rose from 19 percent of total government expenditures in 1982 to 57 percent in 1988, while capital expenditures dropped from an already low 19.3 percent to 4.4 percent. The contraction of government spending translated into the dismantling of state credit, government-subsidiz ed agricultural inputs, price supports, state marketing boards and extension services. Unilateral liberalization of agricultural trade pushed by the IMF and World Bank also contributed to the destabilization of peasant producers.
This blow to peasant agriculture was followed by an even larger one in 1994, when the North American Free Trade Agreement went into effect. Although NAFTA had a fifteen-year phaseout of tariff protection for agricultural products, including corn, highly subsidized US corn quickly flooded in, reducing prices by half and plunging the corn sector into chronic crisis. Largely as a result of this agreement, Mexico's status as a net food importer has now been firmly established.
With the shutting down of the state marketing agency for corn, distribution of US corn imports and Mexican grain has come to be monopolized by a few transnational traders, like US-owned Cargill and partly US-owned Maseca, operating on both sides of the border. This has given them tremendous power to speculate on trade trends, so that movements in biofuel demand can be manipulated and magnified many times over. At the same time, monopoly control of domestic trade has ensured that a rise in international corn prices does not translate into significantly higher prices paid to small producers.
It has become increasingly difficult for Mexican corn farmers to avoid the fate of many of their fellow corn cultivators and other smallholders in sectors such as rice, beef, poultry and pork, who have gone under because of the advantages conferred by NAFTA on subsidized US producers. According to a 2003 Carnegie Endowment report, imports of US agricultural products threw at least 1.3 million farmers out of work--many of whom have since found their way to the United States.
Prospects are not good, since the Mexican government continues to be controlled by neoliberals who are systematically dismantling the peasant support system, a key legacy of the Mexican Revolution. As Food First executive director Eric Holt-Giménez sees it, "It will take time and effort to recover smallholder capacity, and there does not appear to be any political will for this--to say nothing of the fact that NAFTA would have to be renegotiated.
Creating a Rice Crisis in the Philippines
That the global food crisis stems mainly from free-market restructuring of agriculture is clearer in the case of rice. Unlike corn, less than 10 percent of world rice production is traded. Moreover, there has been no diversion of rice from food consumption to biofuels. Yet this year alone, prices nearly tripled, from $380 a ton in January to more than $1,000 in April. Undoubtedly the inflation stems partly from speculation by wholesaler cartels at a time of tightening supplies. However, as with Mexico and corn, the big puzzle is why a number of formerly self-sufficient rice-consuming countries have become severely dependent on imports.
The Philippines provides a grim example of how neoliberal economic restructuring transforms a country from a net food exporter to a net food importer. The Philippines is the world's largest importer of rice. Manila's desperate effort to secure supplies at any price has become front-page news, and pictures of soldiers providing security for rice distribution in poor communities have become emblematic of the global crisis.
The broad contours of the Philippines story are similar to those of Mexico. Dictator Ferdinand Marcos was guilty of many crimes and misdeeds, including failure to follow through on land reform, but one thing he cannot be accused of is starving the agricultural sector. To head off peasant discontent, the regime provided farmers with subsidized fertilizer and seeds, launched credit plans and built rural infrastructure. When Marcos fled the country in 1986, there were 900,000 metric tons of rice in government warehouses.
Paradoxically, the next few years under the new democratic dispensation saw the gutting of government investment capacity. As in Mexico the World Bank and IMF, working on behalf of international creditors, pressured the Corazon Aquino administration to make repayment of the $26 billion foreign debt a priority. Aquino acquiesced, though she was warned by the country's top economists that the "search for a recovery program that is consistent with a debt repayment schedule determined by our creditors is a futile one." Between 1986 and 1993 8 percent to 10 percent of GDP left the Philippines yearly in debt-service payments--roughly the same proportion as in Mexico. Interest payments as a percentage of expenditures rose from 7 percent in 1980 to 28 percent in 1994; capital expenditures plunged from 26 percent to 16 percent. In short, debt servicing became the national budgetary priority.
Spending on agriculture fell by more than half. The World Bank and its local acolytes were not worried, however, since one purpose of the belt-tightening was to get the private sector to energize the countryside. But agricultural capacity quickly eroded. Irrigation stagnated, and by the end of the 1990s only 17 percent of the Philippines' road network was paved, compared with 82 percent in Thailand and 75 percent in Malaysia. Crop yields were generally anemic, with the average rice yield way below those in China, Vietnam and Thailand, where governments actively promoted rural production. The post-Marcos agrarian reform program shriveled, deprived of funding for support services, which had been the key to successful reforms in Taiwan and South Korea. As in Mexico Filipino peasants were confronted with full-scale retreat of the state as provider of comprehensive support--a role they had come to depend on.
And the cutback in agricultural programs was followed by trade liberalization, with the Philippines' 1995 entry into the World Trade Organization having the same effect as Mexico's joining NAFTA. WTO membership required the Philippines to eliminate quotas on all agricultural imports except rice and allow a certain amount of each commodity to enter at low tariff rates. While the country was allowed to maintain a quota on rice imports, it nevertheless had to admit the equivalent of 1 to 4 percent of domestic consumption over the next ten years. In fact, because of gravely weakened production resulting from lack of state support, the government imported much more than that to make up for shortfalls. The massive imports depressed the price of rice, discouraging farmers and keeping growth in production at a rate far below that of the country's two top suppliers, Thailand and Vietnam.
The consequences of the Philippines' joining the WTO barreled through the rest of its agriculture like a super-typhoon. Swamped by cheap corn imports--much of it subsidized US grain--farmers reduced land devoted to corn from 3.1 million hectares in 1993 to 2.5 million in 2000. Massive importation of chicken parts nearly killed that industry, while surges in imports destabilized the poultry, hog and vegetable industries.
During the 1994 campaign to ratify WTO membership, government economists, coached by their World Bank handlers, promised that losses in corn and other traditional crops would be more than compensated for by the new export industry of "high-value- added" crops like cut flowers, asparagus and broccoli. Little of this materialized. Nor did many of the 500,000 agricultural jobs that were supposed to be created yearly by the magic of the market; instead, agricultural employment dropped from 11.2 million in 1994 to 10.8 million in 2001.
The one-two punch of IMF-imposed adjustment and WTO-imposed trade liberalization swiftly transformed a largely self-sufficient agricultural economy into an import-dependent one as it steadily marginalized farmers. It was a wrenching process, the pain of which was captured by a Filipino government negotiator during a WTO session in Geneva. "Our small producers," he said, "are being slaughtered by the gross unfairness of the international trading environment.
The Great Transformation
The experience of Mexico and the Philippines was paralleled in one country after another subjected to the ministrations of the IMF and the WTO. A study of fourteen countries by the UN's Food and Agricultural Organization found that the levels of food imports in 1995-98 exceeded those in 1990-94. This was not surprising, since one of the main goals of the WTO's Agreement on Agriculture was to open up markets in developing countries so they could absorb surplus production in the North. As then-US Agriculture Secretary John Block put it in 1986, "The idea that developing countries should feed themselves is an anachronism from a bygone era. They could better ensure their food security by relying on US agricultural products, which are available in most cases at lower cost."
What Block did not say was that the lower cost of US products stemmed from subsidies, which became more massive with each passing year despite the fact that the WTO was supposed to phase them out. From $367 billion in 1995, the total amount of agricultural subsidies provided by developed-country governments rose to $388 billion in 2004. Since the late 1990s subsidies have accounted for 40 percent of the value of agricultural production in the European Union and 25 percent in the United States.
The apostles of the free market and the defenders of dumping may seem to be at different ends of the spectrum, but the policies they advocate are bringing about the same result: a globalized capitalist industrial agriculture. Developing countries are being integrated into a system where export-oriented production of meat and grain is dominated by large industrial farms like those run by the Thai multinational CP and where technology is continually upgraded by advances in genetic engineering from firms like Monsanto. And the elimination of tariff and nontariff barriers is facilitating a global agricultural supermarket of elite and middle-class consumers serviced by grain-trading corporations like Cargill and Archer Daniels Midland and transnational food retailers like the British-owned Tesco and the French-owned Carrefour.
There is little room for the hundreds of millions of rural and urban poor in this integrated global market. They are confined to giant suburban favelas, where they contend with food prices that are often much higher than the supermarket prices, or to rural reservations, where they are trapped in marginal agricultural activities and increasingly vulnerable to hunger. Indeed, within the same country, famine in the marginalized sector sometimes coexists with prosperity in the globalized sector.
This is not simply the erosion of national food self-sufficiency or food security but what Africanist Deborah Bryceson of Oxford calls "de-peasantization" --the phasing out of a mode of production to make the countryside a more congenial site for intensive capital accumulation. This transformation is a traumatic one for hundreds of millions of people, since peasant production is not simply an economic activity. It is an ancient way of life, a culture, which is one reason displaced or marginalized peasants in India have taken to committing suicide. In the state of Andhra Pradesh, farmer suicides rose from 233 in 1998 to 2,600 in 2002; in Maharashtra, suicides more than tripled, from 1,083 in 1995 to 3,926 in 2005. One estimate is that some 150,000 Indian farmers have taken their lives. Collapse of prices from trade liberalization and loss of control over seeds to biotech firms is part of a comprehensive problem, says global justice activist Vandana Shiva: "Under globalization, the farmer is losing her/his social, cultural, economic identity as a producer. A farmer is now a 'consumer' of costly seeds and costly chemicals sold by powerful global corporations through powerful landlords and money lenders locally."
African Agriculture: From Compliance to Defiance
De-peasantization is at an advanced state in Latin America and Asia. And if the World Bank has its way, Africa will travel in the same direction. As Bryceson and her colleagues correctly point out in a recent article, the World Development Report for 2008, which touches extensively on agriculture in Africa, is practically a blueprint for the transformation of the continent's peasant-based agriculture into large-scale commercial farming. However, as in many other places today, the Bank's wards are moving from sullen resentment to outright defiance.
At the time of decolonization, in the 1960s, Africa was actually a net food exporter. Today the continent imports 25 percent of its food; almost every country is a net importer. Hunger and famine have become recurrent phenomena, with the past three years alone seeing food emergencies break out in the Horn of Africa, the Sahel, and Southern and Central Africa.
Agriculture in Africa is in deep crisis, and the causes range from wars to bad governance, lack of agricultural technology and the spread of HIV/AIDS. However, as in Mexico and the Philippines, an important part of the explanation is the phasing out of government controls and support mechanisms under the IMF and World Bank structural adjustment programs imposed as the price for assistance in servicing external debt.
Structural adjustment brought about declining investment, increased unemployment, reduced social spending, reduced consumption and low output. Lifting price controls on fertilizers while simultaneously cutting back on agricultural credit systems simply led to reduced fertilizer use, lower yields and lower investment. Moreover, reality refused to conform to the doctrinal expectation that withdrawal of the state would pave the way for the market to dynamize agriculture. Instead, the private sector, which correctly saw reduced state expenditures as creating more risk, failed to step into the breach. In country after country, the departure of the state "crowded out" rather than "crowded in" private investment. Where private traders did replace the state, noted an Oxfam report, "they have sometimes done so on highly unfavorable terms for poor farmers," leaving "farmers more food insecure, and governments reliant on unpredictable international aid flows." The usually pro-private sector Economist agreed, admitting that "many of the private firms brought in to replace state researchers turned out to be rent-seeking monopolists. "
The support that African governments were allowed to muster was channeled by the World Bank toward export agriculture to generate foreign exchange, which states needed to service debt. But, as in Ethiopia during the 1980s famine, this led to the dedication of good land to export crops, with food crops forced into less suitable soil, thus exacerbating food insecurity. Moreover, the World Bank's encouragement of several economies to focus on the same export crops often led to overproduction, triggering price collapses in international markets. For instance, the very success of Ghana's expansion of cocoa production triggered a 48 percent drop in the international price between 1986 and 1989. In 2002-03 a collapse in coffee prices contributed to another food emergency in Ethiopia.
As in Mexico and the Philippines, structural adjustment in Africa was not simply about underinvestment but state divestment. But there was one major difference. In Africa the World Bank and IMF micromanaged, making decisions on how fast subsidies should be phased out, how many civil servants had to be fired and even, as in the case of Malawi, how much of the country's grain reserve should be sold and to whom.
Compounding the negative impact of adjustment were unfair EU and US trade practices. Liberalization allowed subsidized EU beef to drive many West African and South African cattle raisers to ruin. With their subsidies legitimized by the WTO, US growers offloaded cotton on world markets at 20 percent to 55 percent of production cost, thereby bankrupting West and Central African farmers.
According to Oxfam, the number of sub-Saharan Africans living on less than a dollar a day almost doubled, to 313 million, between 1981 and 2001--46 percent of the whole continent. The role of structural adjustment in creating poverty was hard to deny. As the World Bank's chief economist for Africa admitted, "We did not think that the human costs of these programs could be so great, and the economic gains would be so slow in coming."
In 1999 the government of Malawi initiated a program to give each smallholder family a starter pack of free fertilizers and seeds. The result was a national surplus of corn. What came after is a story that should be enshrined as a classic case study of one of the greatest blunders of neoliberal economics. The World Bank and other aid donors forced the scaling down and eventual scrapping of the program, arguing that the subsidy distorted trade. Without the free packs, output plummeted. In the meantime, the IMF insisted that the government sell off a large portion of its grain reserves to enable the food reserve agency to settle its commercial debts. The government complied. When the food crisis turned into a famine in 2001-02, there were hardly any reserves left. About 1,500 people perished. The IMF was unrepentant; in fact, it suspended its disbursements on an adjustment program on the grounds that "the parastatal sector will continue to pose risks to the successful implementation of the 2002/03 budget. Government interventions in the food and other agricultural markets... [are] crowding out more productive spending."
By the time an even worse food crisis developed in 2005, the government had had enough of World Bank/IMF stupidity. A new president reintroduced the fertilizer subsidy, enabling 2 million households to buy it at a third of the retail price and seeds at a discount. The result: bumper harvests for two years, a million-ton maize surplus and the country transformed into a supplier of corn to Southern Africa.
Malawi's defiance of the World Bank would probably have been an act of heroic but futile resistance a decade ago. The environment is different today, since structural adjustment has been discredited throughout Africa. Even some donor governments and NGOs that used to subscribe to it have distanced themselves from the Bank. Perhaps the motivation is to prevent their influence in the continent from being further eroded by association with a failed approach and unpopular institutions when Chinese aid is emerging as an alternative to World Bank, IMF and Western government aid programs.
Food Sovereignty: An Alternative Paradigm?
It is not only defiance from governments like Malawi and dissent from their erstwhile allies that are undermining the IMF and the World Bank. Peasant organizations around the world have become increasingly militant in their resistance to the globalization of industrial agriculture. Indeed, it is because of pressure from farmers' groups that the governments of the South have refused to grant wider access to their agricultural markets and demanded a massive slashing of US and EU agricultural subsidies, which brought the WTO's Doha Round of negotiations to a standstill.
Farmers' groups have networked internationally; one of the most dynamic to emerge is Via Campesina (Peasant's Path). Via not only seeks to get "WTO out of agriculture" and opposes the paradigm of a globalized capitalist industrial agriculture; it also proposes an alternative- -food sovereignty. Food sovereignty means, first of all, the right of a country to determine its production and consumption of food and the exemption of agriculture from global trade regimes like that of the WTO. It also means consolidation of a smallholder- centered agriculture via protection of the domestic market from low-priced imports; remunerative prices for farmers and fisherfolk; abolition of all direct and indirect export subsidies; and the phasing out of domestic subsidies that promote unsustainable agriculture. Via's platform also calls for an end to the Trade Related Intellectual Property Rights regime, or TRIPs, which allows corporations to patent plant seeds; opposes agro-technology based on genetic engineering; and demands land reform. In contrast to an integrated global monoculture, Via offers the vision of an international agricultural economy composed of diverse national agricultural economies trading with one another but focused primarily on domestic production.
Once regarded as relics of the pre-industrial era, peasants are now leading the opposition to a capitalist industrial agriculture that would consign them to the dustbin of history. They have become what Karl Marx described as a politically conscious "class for itself," contradicting his predictions about their demise. With the global food crisis, they are moving to center stage--and they have allies and supporters. For as peasants refuse to go gently into that good night and fight de-peasantization, developments in the twenty-first century are revealing the panacea of globalized capitalist industrial agriculture to be a nightmare. With environmental crises multiplying, the social dysfunctions of urban-industrial life piling up and industrialized agriculture creating greater food insecurity, the farmers' movement increasingly has relevance not only to peasants but to everyone threatened by the catastrophic consequences of global capital's vision for organizing production, community and life itself.
About Walden BelloWalden Bello is senior analyst at and former executive director of Focus on the Global South, a research and advocacy institute based at Chulalongkorn University in Bangkok. He is the author or co-author of many books on politics and economic issues in the Philippines and Asia, including, most recently, Deglobalization (Zed), and recipient of the 2003 Right Livelihood Award, also known as the "Alternative Nobel Prize." In March he was named Outstanding Public Scholar for 2008 by the International Studies Association.
The Mexican food crisis cannot be fully understood without taking into account the fact that in the years preceding the tortilla crisis, the homeland of corn had been converted to a corn-importing economy by "free market" policies promoted by the International Monetary Fund (IMF), the World Bank and Washington. The process began with the early 1980s debt crisis. One of the two largest developing-country debtors, Mexico was forced to beg for money from the Bank and IMF to service its debt to international commercial banks. The quid pro quo for a multibillion- dollar bailout was what a member of the World Bank executive board described as "unprecedented thoroughgoing interventionism" designed to eliminate high tariffs, state regulations and government support institutions, which neoliberal doctrine identified as barriers to economic efficiency.
Interest payments rose from 19 percent of total government expenditures in 1982 to 57 percent in 1988, while capital expenditures dropped from an already low 19.3 percent to 4.4 percent. The contraction of government spending translated into the dismantling of state credit, government-subsidiz ed agricultural inputs, price supports, state marketing boards and extension services. Unilateral liberalization of agricultural trade pushed by the IMF and World Bank also contributed to the destabilization of peasant producers.
This blow to peasant agriculture was followed by an even larger one in 1994, when the North American Free Trade Agreement went into effect. Although NAFTA had a fifteen-year phaseout of tariff protection for agricultural products, including corn, highly subsidized US corn quickly flooded in, reducing prices by half and plunging the corn sector into chronic crisis. Largely as a result of this agreement, Mexico's status as a net food importer has now been firmly established.
With the shutting down of the state marketing agency for corn, distribution of US corn imports and Mexican grain has come to be monopolized by a few transnational traders, like US-owned Cargill and partly US-owned Maseca, operating on both sides of the border. This has given them tremendous power to speculate on trade trends, so that movements in biofuel demand can be manipulated and magnified many times over. At the same time, monopoly control of domestic trade has ensured that a rise in international corn prices does not translate into significantly higher prices paid to small producers.
It has become increasingly difficult for Mexican corn farmers to avoid the fate of many of their fellow corn cultivators and other smallholders in sectors such as rice, beef, poultry and pork, who have gone under because of the advantages conferred by NAFTA on subsidized US producers. According to a 2003 Carnegie Endowment report, imports of US agricultural products threw at least 1.3 million farmers out of work--many of whom have since found their way to the United States.
Prospects are not good, since the Mexican government continues to be controlled by neoliberals who are systematically dismantling the peasant support system, a key legacy of the Mexican Revolution. As Food First executive director Eric Holt-Giménez sees it, "It will take time and effort to recover smallholder capacity, and there does not appear to be any political will for this--to say nothing of the fact that NAFTA would have to be renegotiated.
Creating a Rice Crisis in the Philippines
That the global food crisis stems mainly from free-market restructuring of agriculture is clearer in the case of rice. Unlike corn, less than 10 percent of world rice production is traded. Moreover, there has been no diversion of rice from food consumption to biofuels. Yet this year alone, prices nearly tripled, from $380 a ton in January to more than $1,000 in April. Undoubtedly the inflation stems partly from speculation by wholesaler cartels at a time of tightening supplies. However, as with Mexico and corn, the big puzzle is why a number of formerly self-sufficient rice-consuming countries have become severely dependent on imports.
The Philippines provides a grim example of how neoliberal economic restructuring transforms a country from a net food exporter to a net food importer. The Philippines is the world's largest importer of rice. Manila's desperate effort to secure supplies at any price has become front-page news, and pictures of soldiers providing security for rice distribution in poor communities have become emblematic of the global crisis.
The broad contours of the Philippines story are similar to those of Mexico. Dictator Ferdinand Marcos was guilty of many crimes and misdeeds, including failure to follow through on land reform, but one thing he cannot be accused of is starving the agricultural sector. To head off peasant discontent, the regime provided farmers with subsidized fertilizer and seeds, launched credit plans and built rural infrastructure. When Marcos fled the country in 1986, there were 900,000 metric tons of rice in government warehouses.
Paradoxically, the next few years under the new democratic dispensation saw the gutting of government investment capacity. As in Mexico the World Bank and IMF, working on behalf of international creditors, pressured the Corazon Aquino administration to make repayment of the $26 billion foreign debt a priority. Aquino acquiesced, though she was warned by the country's top economists that the "search for a recovery program that is consistent with a debt repayment schedule determined by our creditors is a futile one." Between 1986 and 1993 8 percent to 10 percent of GDP left the Philippines yearly in debt-service payments--roughly the same proportion as in Mexico. Interest payments as a percentage of expenditures rose from 7 percent in 1980 to 28 percent in 1994; capital expenditures plunged from 26 percent to 16 percent. In short, debt servicing became the national budgetary priority.
Spending on agriculture fell by more than half. The World Bank and its local acolytes were not worried, however, since one purpose of the belt-tightening was to get the private sector to energize the countryside. But agricultural capacity quickly eroded. Irrigation stagnated, and by the end of the 1990s only 17 percent of the Philippines' road network was paved, compared with 82 percent in Thailand and 75 percent in Malaysia. Crop yields were generally anemic, with the average rice yield way below those in China, Vietnam and Thailand, where governments actively promoted rural production. The post-Marcos agrarian reform program shriveled, deprived of funding for support services, which had been the key to successful reforms in Taiwan and South Korea. As in Mexico Filipino peasants were confronted with full-scale retreat of the state as provider of comprehensive support--a role they had come to depend on.
And the cutback in agricultural programs was followed by trade liberalization, with the Philippines' 1995 entry into the World Trade Organization having the same effect as Mexico's joining NAFTA. WTO membership required the Philippines to eliminate quotas on all agricultural imports except rice and allow a certain amount of each commodity to enter at low tariff rates. While the country was allowed to maintain a quota on rice imports, it nevertheless had to admit the equivalent of 1 to 4 percent of domestic consumption over the next ten years. In fact, because of gravely weakened production resulting from lack of state support, the government imported much more than that to make up for shortfalls. The massive imports depressed the price of rice, discouraging farmers and keeping growth in production at a rate far below that of the country's two top suppliers, Thailand and Vietnam.
The consequences of the Philippines' joining the WTO barreled through the rest of its agriculture like a super-typhoon. Swamped by cheap corn imports--much of it subsidized US grain--farmers reduced land devoted to corn from 3.1 million hectares in 1993 to 2.5 million in 2000. Massive importation of chicken parts nearly killed that industry, while surges in imports destabilized the poultry, hog and vegetable industries.
During the 1994 campaign to ratify WTO membership, government economists, coached by their World Bank handlers, promised that losses in corn and other traditional crops would be more than compensated for by the new export industry of "high-value- added" crops like cut flowers, asparagus and broccoli. Little of this materialized. Nor did many of the 500,000 agricultural jobs that were supposed to be created yearly by the magic of the market; instead, agricultural employment dropped from 11.2 million in 1994 to 10.8 million in 2001.
The one-two punch of IMF-imposed adjustment and WTO-imposed trade liberalization swiftly transformed a largely self-sufficient agricultural economy into an import-dependent one as it steadily marginalized farmers. It was a wrenching process, the pain of which was captured by a Filipino government negotiator during a WTO session in Geneva. "Our small producers," he said, "are being slaughtered by the gross unfairness of the international trading environment.
The Great Transformation
The experience of Mexico and the Philippines was paralleled in one country after another subjected to the ministrations of the IMF and the WTO. A study of fourteen countries by the UN's Food and Agricultural Organization found that the levels of food imports in 1995-98 exceeded those in 1990-94. This was not surprising, since one of the main goals of the WTO's Agreement on Agriculture was to open up markets in developing countries so they could absorb surplus production in the North. As then-US Agriculture Secretary John Block put it in 1986, "The idea that developing countries should feed themselves is an anachronism from a bygone era. They could better ensure their food security by relying on US agricultural products, which are available in most cases at lower cost."
What Block did not say was that the lower cost of US products stemmed from subsidies, which became more massive with each passing year despite the fact that the WTO was supposed to phase them out. From $367 billion in 1995, the total amount of agricultural subsidies provided by developed-country governments rose to $388 billion in 2004. Since the late 1990s subsidies have accounted for 40 percent of the value of agricultural production in the European Union and 25 percent in the United States.
The apostles of the free market and the defenders of dumping may seem to be at different ends of the spectrum, but the policies they advocate are bringing about the same result: a globalized capitalist industrial agriculture. Developing countries are being integrated into a system where export-oriented production of meat and grain is dominated by large industrial farms like those run by the Thai multinational CP and where technology is continually upgraded by advances in genetic engineering from firms like Monsanto. And the elimination of tariff and nontariff barriers is facilitating a global agricultural supermarket of elite and middle-class consumers serviced by grain-trading corporations like Cargill and Archer Daniels Midland and transnational food retailers like the British-owned Tesco and the French-owned Carrefour.
There is little room for the hundreds of millions of rural and urban poor in this integrated global market. They are confined to giant suburban favelas, where they contend with food prices that are often much higher than the supermarket prices, or to rural reservations, where they are trapped in marginal agricultural activities and increasingly vulnerable to hunger. Indeed, within the same country, famine in the marginalized sector sometimes coexists with prosperity in the globalized sector.
This is not simply the erosion of national food self-sufficiency or food security but what Africanist Deborah Bryceson of Oxford calls "de-peasantization" --the phasing out of a mode of production to make the countryside a more congenial site for intensive capital accumulation. This transformation is a traumatic one for hundreds of millions of people, since peasant production is not simply an economic activity. It is an ancient way of life, a culture, which is one reason displaced or marginalized peasants in India have taken to committing suicide. In the state of Andhra Pradesh, farmer suicides rose from 233 in 1998 to 2,600 in 2002; in Maharashtra, suicides more than tripled, from 1,083 in 1995 to 3,926 in 2005. One estimate is that some 150,000 Indian farmers have taken their lives. Collapse of prices from trade liberalization and loss of control over seeds to biotech firms is part of a comprehensive problem, says global justice activist Vandana Shiva: "Under globalization, the farmer is losing her/his social, cultural, economic identity as a producer. A farmer is now a 'consumer' of costly seeds and costly chemicals sold by powerful global corporations through powerful landlords and money lenders locally."
African Agriculture: From Compliance to Defiance
De-peasantization is at an advanced state in Latin America and Asia. And if the World Bank has its way, Africa will travel in the same direction. As Bryceson and her colleagues correctly point out in a recent article, the World Development Report for 2008, which touches extensively on agriculture in Africa, is practically a blueprint for the transformation of the continent's peasant-based agriculture into large-scale commercial farming. However, as in many other places today, the Bank's wards are moving from sullen resentment to outright defiance.
At the time of decolonization, in the 1960s, Africa was actually a net food exporter. Today the continent imports 25 percent of its food; almost every country is a net importer. Hunger and famine have become recurrent phenomena, with the past three years alone seeing food emergencies break out in the Horn of Africa, the Sahel, and Southern and Central Africa.
Agriculture in Africa is in deep crisis, and the causes range from wars to bad governance, lack of agricultural technology and the spread of HIV/AIDS. However, as in Mexico and the Philippines, an important part of the explanation is the phasing out of government controls and support mechanisms under the IMF and World Bank structural adjustment programs imposed as the price for assistance in servicing external debt.
Structural adjustment brought about declining investment, increased unemployment, reduced social spending, reduced consumption and low output. Lifting price controls on fertilizers while simultaneously cutting back on agricultural credit systems simply led to reduced fertilizer use, lower yields and lower investment. Moreover, reality refused to conform to the doctrinal expectation that withdrawal of the state would pave the way for the market to dynamize agriculture. Instead, the private sector, which correctly saw reduced state expenditures as creating more risk, failed to step into the breach. In country after country, the departure of the state "crowded out" rather than "crowded in" private investment. Where private traders did replace the state, noted an Oxfam report, "they have sometimes done so on highly unfavorable terms for poor farmers," leaving "farmers more food insecure, and governments reliant on unpredictable international aid flows." The usually pro-private sector Economist agreed, admitting that "many of the private firms brought in to replace state researchers turned out to be rent-seeking monopolists. "
The support that African governments were allowed to muster was channeled by the World Bank toward export agriculture to generate foreign exchange, which states needed to service debt. But, as in Ethiopia during the 1980s famine, this led to the dedication of good land to export crops, with food crops forced into less suitable soil, thus exacerbating food insecurity. Moreover, the World Bank's encouragement of several economies to focus on the same export crops often led to overproduction, triggering price collapses in international markets. For instance, the very success of Ghana's expansion of cocoa production triggered a 48 percent drop in the international price between 1986 and 1989. In 2002-03 a collapse in coffee prices contributed to another food emergency in Ethiopia.
As in Mexico and the Philippines, structural adjustment in Africa was not simply about underinvestment but state divestment. But there was one major difference. In Africa the World Bank and IMF micromanaged, making decisions on how fast subsidies should be phased out, how many civil servants had to be fired and even, as in the case of Malawi, how much of the country's grain reserve should be sold and to whom.
Compounding the negative impact of adjustment were unfair EU and US trade practices. Liberalization allowed subsidized EU beef to drive many West African and South African cattle raisers to ruin. With their subsidies legitimized by the WTO, US growers offloaded cotton on world markets at 20 percent to 55 percent of production cost, thereby bankrupting West and Central African farmers.
According to Oxfam, the number of sub-Saharan Africans living on less than a dollar a day almost doubled, to 313 million, between 1981 and 2001--46 percent of the whole continent. The role of structural adjustment in creating poverty was hard to deny. As the World Bank's chief economist for Africa admitted, "We did not think that the human costs of these programs could be so great, and the economic gains would be so slow in coming."
In 1999 the government of Malawi initiated a program to give each smallholder family a starter pack of free fertilizers and seeds. The result was a national surplus of corn. What came after is a story that should be enshrined as a classic case study of one of the greatest blunders of neoliberal economics. The World Bank and other aid donors forced the scaling down and eventual scrapping of the program, arguing that the subsidy distorted trade. Without the free packs, output plummeted. In the meantime, the IMF insisted that the government sell off a large portion of its grain reserves to enable the food reserve agency to settle its commercial debts. The government complied. When the food crisis turned into a famine in 2001-02, there were hardly any reserves left. About 1,500 people perished. The IMF was unrepentant; in fact, it suspended its disbursements on an adjustment program on the grounds that "the parastatal sector will continue to pose risks to the successful implementation of the 2002/03 budget. Government interventions in the food and other agricultural markets... [are] crowding out more productive spending."
By the time an even worse food crisis developed in 2005, the government had had enough of World Bank/IMF stupidity. A new president reintroduced the fertilizer subsidy, enabling 2 million households to buy it at a third of the retail price and seeds at a discount. The result: bumper harvests for two years, a million-ton maize surplus and the country transformed into a supplier of corn to Southern Africa.
Malawi's defiance of the World Bank would probably have been an act of heroic but futile resistance a decade ago. The environment is different today, since structural adjustment has been discredited throughout Africa. Even some donor governments and NGOs that used to subscribe to it have distanced themselves from the Bank. Perhaps the motivation is to prevent their influence in the continent from being further eroded by association with a failed approach and unpopular institutions when Chinese aid is emerging as an alternative to World Bank, IMF and Western government aid programs.
Food Sovereignty: An Alternative Paradigm?
It is not only defiance from governments like Malawi and dissent from their erstwhile allies that are undermining the IMF and the World Bank. Peasant organizations around the world have become increasingly militant in their resistance to the globalization of industrial agriculture. Indeed, it is because of pressure from farmers' groups that the governments of the South have refused to grant wider access to their agricultural markets and demanded a massive slashing of US and EU agricultural subsidies, which brought the WTO's Doha Round of negotiations to a standstill.
Farmers' groups have networked internationally; one of the most dynamic to emerge is Via Campesina (Peasant's Path). Via not only seeks to get "WTO out of agriculture" and opposes the paradigm of a globalized capitalist industrial agriculture; it also proposes an alternative- -food sovereignty. Food sovereignty means, first of all, the right of a country to determine its production and consumption of food and the exemption of agriculture from global trade regimes like that of the WTO. It also means consolidation of a smallholder- centered agriculture via protection of the domestic market from low-priced imports; remunerative prices for farmers and fisherfolk; abolition of all direct and indirect export subsidies; and the phasing out of domestic subsidies that promote unsustainable agriculture. Via's platform also calls for an end to the Trade Related Intellectual Property Rights regime, or TRIPs, which allows corporations to patent plant seeds; opposes agro-technology based on genetic engineering; and demands land reform. In contrast to an integrated global monoculture, Via offers the vision of an international agricultural economy composed of diverse national agricultural economies trading with one another but focused primarily on domestic production.
Once regarded as relics of the pre-industrial era, peasants are now leading the opposition to a capitalist industrial agriculture that would consign them to the dustbin of history. They have become what Karl Marx described as a politically conscious "class for itself," contradicting his predictions about their demise. With the global food crisis, they are moving to center stage--and they have allies and supporters. For as peasants refuse to go gently into that good night and fight de-peasantization, developments in the twenty-first century are revealing the panacea of globalized capitalist industrial agriculture to be a nightmare. With environmental crises multiplying, the social dysfunctions of urban-industrial life piling up and industrialized agriculture creating greater food insecurity, the farmers' movement increasingly has relevance not only to peasants but to everyone threatened by the catastrophic consequences of global capital's vision for organizing production, community and life itself.
About Walden BelloWalden Bello is senior analyst at and former executive director of Focus on the Global South, a research and advocacy institute based at Chulalongkorn University in Bangkok. He is the author or co-author of many books on politics and economic issues in the Philippines and Asia, including, most recently, Deglobalization (Zed), and recipient of the 2003 Right Livelihood Award, also known as the "Alternative Nobel Prize." In March he was named Outstanding Public Scholar for 2008 by the International Studies Association.
Wednesday, May 14, 2008
On power play and consumer empowerment
What became clearer in Monday’s hearing of the Joint Congressional Power Commission (JCPC) is not the immediate reduction in power rates but the electrifying power play between the Lopezes and the government for control of Meralco.
Designed purposely to address the high cost of power in the country, the JCPC hearing was supposed to look for ways to reduce the cost of power in the country, which is among the highest in the world.
Though many issues contributing to the high electricity rates such as the imposition of VAT, system loss charge and other pass-on rates were discussed, it was obviously the raging power play between the Lopezes and the Arroyo government for control of Meralco that occupied center stage.
Hearing GSIS President Winston Garcia himself accused of mismanaging the government employees’ pension fund, talk about inefficiency in the management of Meralco is already mind boggling. And for a Meralco director like him, who represents 33 percent of the country’s biggest utility to be denied access to corporate records, is even more baffling. These are corporate matters easily resolved, not in public debate, but within the company’s walls or in the courts. There must be a bigger purpose behind Garcia’s moves. And there must be something the Lopezes don’t want the public—Garcia’s bosses most especially—to know.
It is our position that Meralco must be made to answer for all the burdens it has been unjustly imposing onto its customers, including the deals it has made with Mrs. Arroyo at the expense of the unknowing public. This it must do, in the interest of justice—and justice has long been overdue.
But the company should not be made a convenient excuse by the Arroyo government to save its own skin and evade its culpability over this complex problem of high electricity rates. From the signing of the EPIRA into law, to the non-renegotiation of the contracts with IPPs, to the deals with the Lopezes at the expense of the public, to the higher rates and higher returns to Napocor and Transco, to the privatization deals and bids—these involve billions of pesos and it is quite impossible to imagine the Arroyo administration not dipping its fingers into these magnificent pies.
The Freedom from Debt Coalition would like to issue a stern warning to Mrs. Arroyo, her family and allies in Malacañang: Stop the power grab. Do not use a legitimate and burning popular issue of high electricity rates to serve your own selfish interests. With feeling, we say in one emphatic voice: Back off!
Rather than allow itself to be used as a pawn in this power play, the PowerCom can seriously consider another option: consumer ownership. We at the Freedom from Debt Coalition have been pushing for this since 2005, when the issue of the P30-B Meralco refund first surfaced.
It is high time we departed from the old school that treated consumers simply as captive markets rather than as rightful owners of a public utility. These public utilities were built by peoples’ money. It is time to give the power back to where it rightfully belongs. Privatization, however, has made this option next to impossible. But we’ll keep pursuing this option, not only because it is more democratic. In the final analysis making a utility accountable to its owners who are also its consumers will render electricity prices more reasonable and fair. And render power grabs and power deals by power-hungry elites a thing of the past.
Likewise, members of the JCPC should consider the immediate overhauling of EPIRA if they want to convert their words into action. This policy framework failed, and will not usher in a brighter energy future for the country. Lawmakers should stop pointing their fingers at others as if they themselves had no hand in creating the monster of failed privatization policy and flawed electricity reforms under EPIRA.
Why is Meralco involved in ‘sweetheart deals’ with other Lopez-owned IPPs? Because EPIRA allows cross-ownership. Why is Meralco buying more than 50 percent of its total supply from its own IPPs? Because EPIRA allows it to do so. Why are Meralco rates higher that other distribution utilities? Because EPIRA and the ERC allowed the use of different rate methodologies. Why is it that whoever controls Meralco controls the power sector? Because EPIRA renders it so.
How about the IPP contracts that made us pay P7.71/kWh from Casecnan rather than at NPC’s P3.89 generation charge? Again, EPIRA requires us to pay for them until the end of the contract. Imagine half of the price cut if this contract were rescinded.
When asked yesterday if NPC can supply the needed requirement of Meralco to avail of its cheaper price, the answer is predictably no. Why? Because with almost 50 percent of its generating capacity already privatized and the remaining to be finished this year, how can a dying NPC enter into a long-term supply contract with Meralco.
Now if lawmakers only see the devil in the Lopezes and ignore the bigger power play being hatched and the failed policies behind these high electricity rates, they had better switch off the lights in both houses of Congress. Or pay our electric bills. Or failing that, shoot their own feet.
Freedom from Debt Coalition
Designed purposely to address the high cost of power in the country, the JCPC hearing was supposed to look for ways to reduce the cost of power in the country, which is among the highest in the world.
Though many issues contributing to the high electricity rates such as the imposition of VAT, system loss charge and other pass-on rates were discussed, it was obviously the raging power play between the Lopezes and the Arroyo government for control of Meralco that occupied center stage.
Hearing GSIS President Winston Garcia himself accused of mismanaging the government employees’ pension fund, talk about inefficiency in the management of Meralco is already mind boggling. And for a Meralco director like him, who represents 33 percent of the country’s biggest utility to be denied access to corporate records, is even more baffling. These are corporate matters easily resolved, not in public debate, but within the company’s walls or in the courts. There must be a bigger purpose behind Garcia’s moves. And there must be something the Lopezes don’t want the public—Garcia’s bosses most especially—to know.
It is our position that Meralco must be made to answer for all the burdens it has been unjustly imposing onto its customers, including the deals it has made with Mrs. Arroyo at the expense of the unknowing public. This it must do, in the interest of justice—and justice has long been overdue.
But the company should not be made a convenient excuse by the Arroyo government to save its own skin and evade its culpability over this complex problem of high electricity rates. From the signing of the EPIRA into law, to the non-renegotiation of the contracts with IPPs, to the deals with the Lopezes at the expense of the public, to the higher rates and higher returns to Napocor and Transco, to the privatization deals and bids—these involve billions of pesos and it is quite impossible to imagine the Arroyo administration not dipping its fingers into these magnificent pies.
The Freedom from Debt Coalition would like to issue a stern warning to Mrs. Arroyo, her family and allies in Malacañang: Stop the power grab. Do not use a legitimate and burning popular issue of high electricity rates to serve your own selfish interests. With feeling, we say in one emphatic voice: Back off!
Rather than allow itself to be used as a pawn in this power play, the PowerCom can seriously consider another option: consumer ownership. We at the Freedom from Debt Coalition have been pushing for this since 2005, when the issue of the P30-B Meralco refund first surfaced.
It is high time we departed from the old school that treated consumers simply as captive markets rather than as rightful owners of a public utility. These public utilities were built by peoples’ money. It is time to give the power back to where it rightfully belongs. Privatization, however, has made this option next to impossible. But we’ll keep pursuing this option, not only because it is more democratic. In the final analysis making a utility accountable to its owners who are also its consumers will render electricity prices more reasonable and fair. And render power grabs and power deals by power-hungry elites a thing of the past.
Likewise, members of the JCPC should consider the immediate overhauling of EPIRA if they want to convert their words into action. This policy framework failed, and will not usher in a brighter energy future for the country. Lawmakers should stop pointing their fingers at others as if they themselves had no hand in creating the monster of failed privatization policy and flawed electricity reforms under EPIRA.
Why is Meralco involved in ‘sweetheart deals’ with other Lopez-owned IPPs? Because EPIRA allows cross-ownership. Why is Meralco buying more than 50 percent of its total supply from its own IPPs? Because EPIRA allows it to do so. Why are Meralco rates higher that other distribution utilities? Because EPIRA and the ERC allowed the use of different rate methodologies. Why is it that whoever controls Meralco controls the power sector? Because EPIRA renders it so.
How about the IPP contracts that made us pay P7.71/kWh from Casecnan rather than at NPC’s P3.89 generation charge? Again, EPIRA requires us to pay for them until the end of the contract. Imagine half of the price cut if this contract were rescinded.
When asked yesterday if NPC can supply the needed requirement of Meralco to avail of its cheaper price, the answer is predictably no. Why? Because with almost 50 percent of its generating capacity already privatized and the remaining to be finished this year, how can a dying NPC enter into a long-term supply contract with Meralco.
Now if lawmakers only see the devil in the Lopezes and ignore the bigger power play being hatched and the failed policies behind these high electricity rates, they had better switch off the lights in both houses of Congress. Or pay our electric bills. Or failing that, shoot their own feet.
Freedom from Debt Coalition
Tuesday, May 13, 2008
10 Reasons Why Electricity Bills Are High
After MERALCO, the country’s largest electricity distributor and supplier, announced last April an increase in its generation charges by 51.88 centavos per kilowatt hour (kWh), rumors of a brewing government takeover began spreading like wildfire. Signals are there, experts say, as shares of both the government and the Lopezes each jumped to more than 30%, with the Lopezes having a slight fractional advantage.
The recent government actions to pin down MERALCO and target the Lopezes, however, only serve to narrow the discourse to a simplistic formula: Electricity rates are high; for which MERALCO and the Lopezes are to blame. Meralco is no doubt an easy and guilty target. But there are more reasons for electricity rates in the Philippines being among the highest in Asia. And the Arroyo government is equally to blame, if not more.
The Freedom from Debt Coalition (FDC) believes that the issue of high electricity prices is a result of a confluence of factors, from bad governance to corruption to mismanagement to rent-seeking to framework concerns. It is also more complex than what media portrays or what some politicians would want us to believe. We attempt to identify these factors as our contribution to gaining a fuller understanding of the problem of unabated expensive electricity.
FDC argues that the skyrocketing price of electricity emanates from structural, management, policy, governance and paradigmatic causes. FDC believes that these problems cannot be resolved fully without transforming the electricity industry into one that is more responsive and accountable to the people, and more environmentally sustainable. Meanwhile, it would greatly help the consumer for the government to target specific rate-hiking factors and introduce immediate reforms, with the end-in-view of course, of more comprehensive changes sooner rather than later.
We believe electricity is expensive because of the following:
1. The Energy Regulatory Commission (ERC) allows MERALCO, other distribution utilities (DUs) and the National Transmission Commission (Transco) to earn over and above what used to be the statutory return on rate base of 8-12%. The Electric Power Industry Reform Act (EPIRA) allowed ERC to change the system of tariff setting, and it did. But the systems it now follows allows both transmission and distribution companies to earn far more than what they were allowed to earn in the past. And as far as generation and supply companies are concerned, the ERC has little if any say in the prices they charge because generation and supply are deregulated under EPIRA.
2. The Arroyo government wants to attract private investors to purchase NPC’s assets, and for the assets to become attractive, electricity rates have to be high. The higher the winning bidder bids, the higher the electricity price we have to pay in the future so the winning bidder can recover its investment.This can be observed with the nature of recent electricity rate hikes. Following the suggestion of the Asian Development Bank (ADB), the National Power Corporation (NPC) petitioned rate hikes in order to attract investors since no investor would invest without proof of financial viability. Out of the PhP1.98/kWh NPC petitioned in 2004, PhP1.03/kWh was approved by ERC in 2005 – the highest rate hike in the history of the ERC. Transmission charges also increased from PhP0.7716/kWh in May 2006 to PhP0.9163/kWh in July 2006 (which is contrasted with almost flat prices from November 2005 up to May 2006) as the privatization and the bidding process is about to start.
3. The Arroyo government did not renegotiate the contracts with NPC’s independent power producers or IPPs. These contracts require NPC to purchase electricity whether or not these are actually generated or dispatched, and to supply fuel to IPPs that are in operation. The price NPC agreed to pay for this electricity was overstated to begin with, and many of these contracts have clauses that allow the IPP to raise rates over time. NPC also bears the risk of peso devaluation and the risk of the cost of fuel, such as oil and coal, going up. We have been paying for these contracts in our electric bills for over a decade, and we continue to pay for these today, although this is less transparent, thanks to unbundling. With world oil and coal prices hitting all time highs, with the peso now at PhP40 to the dollar compared with PhP26:$1 when these contracts were signed, the cost of these contracts are an excessive burden on ordinary Filipino electricity consumers. Even consumers that do not have electricity at home are also made to pay for these contracts because the government guarantees all of NPC’s obligations to the IPPs.
4. EPIRA allows MERALCO to purchase at most half of its electricity requirements from its sister companies or IPPs. Besides the problem of NPC with the IPPs, we have the problem of MERALCO’s contracts directly with its own IPPs. EPIRA also allows cross ownership between generation and distribution. A closer look at the ownership of most of MERALCO’s IPPs will show that they are owned by the Lopezes. Examples include the Santa Rita, the San Lorenzo Natural Gas, and the Quezon Coal-fired Power Plants. Whatever guarantees the government gives to its IPPs, MERALCO also gives to its IPPs. MERALCO has always claimed that it doesn’t earn from the high generation charges of its IPPs, and that it is merely passing on to its IPPs whatever it charges its customers for generation. MERALCO is telling the truth. But that is not the entire picture. For while MERALCO doesn’t itself earn from the high generation charges of its IPPs, the Lopezes do. A simple review of the financial statements of the Lopez holding company and its generation companies will show this.This results to a clear case of double-whammy for the consumers. At one end, NPC must still pay for the unsold electricity it gets from IPPs because of the take-or-pay provision – an undue costs which will later be part of NPC’s stranded cost to be passed on later to the consumers. At the other end, MERALCO pays its IPPs more than what it would have paid NPC, if it bought the electricity from NPC during the same hours that MERALCO was buying from its IPPs. As NPC rates vary from hour to hour, becoming more expensive when demand for electricity peaks, we must compare on an hourly basis what MERALCO pays its IPPs with what it would have paid NPC if it bought electricity from NPC instead of its IPPs.Fortunately during the May 6, 2008 dialogue at the ERC, members of FDC and EmPower Consumers were able to obtain a copy of Meralco’s electricity suppliers and their respective cost and share for the months of March and April.
5. High electricity prices breed inefficiencies, which further raise the cost of electricity. The power sector is inherently inefficient. . Average capacity utilization of Transco’s transmission lines, according to an ADB report, is only at 12%. We are paying for the investment and loans incurred to set up a transmission grid and on the average, only 12% of the capacity is being utilized. With regard to generation, dependable capacity in the Philippines amounted to 13,639MW at the end of 2006, but that same year, peak demand for electricity was only 8,760MW. We pay for capacity we don’t use, and this is such a heavy burden on consumers that we economize on our use of electricity even further. However, the less we consume of electricity, the more we have to pay of unused capacity. This is a vicious cycle similar to a debt trap. Industries cannot survive such a set-up. Poor consumers, even less so.This is manifested in electricity consumption data obtained from the Department of Energy: Electricity consumption grew by 10.6% in 2003, then by a lower 3.2% in 2004, then by an even lower 2.5% in 2005. In 2006 electricity consumption grew by only 1.1%. Today it is residential and commercial users who hold a bigger share of total consumption. The thing is, residential and commercial consumers have peak hours when their demand for electricity is strong. Beyond that, demand is very low. This leaves the power sector with a huge inefficient setup: Base load demand is weak but you have to have extra capacity for use during the peak hours. This also means that you have to spend on additional capacity that will most likely get used only during peak hours. This is clearly wasteful and inefficient.
6. Other ERC decisions have rendered the cost of electricity high. One such decision is the ERC's dismissal of the Power Sector Assets and Liabilities Management Corporation (PSALM) market abuse case alleged by the Philippine Electricity Market Corporation (PEMC), the operator of the Wholesale Electricity Spot Market (WESM). The ERC dismissed this for lack of sufficient evidence, despite the detailed market data submitted by PEMC clearly showing that PSALM exercised its market power to raise the WESM spot price. The dismissal by ERC will cost consumers an additional PhP14B.
7. EPIRA-mandated removal of subsidies. Following the logic of privatization and market-reforms, EPIRA states that instruments such as cross-subsidies which distort the “real” price of electricity should be removed. This is in keeping with the transformation of electricity industry from a public service industry to a commodity market. The prices should be subjected to market rules alone – and considerations such as equity and justice in the provision of electricity should be abolished. Households no longer enjoy subsidies from the industrial and commercial sectors, and households in Mindanao and Visayas are no longer being subsidized by households in Luzon. These households that no longer enjoy the subsidies of the pre-EPIRA days have experienced a hike in rates as a result of the removal of these subsidies.Even the lifeline rate today is not what it used to be. In the logic of subsidy, better off consumers subsidize the more disadvantaged ones. This may work in cities like Manila but in areas that are by and large poor, the lifeline rate is symbolic more than real and it is actually the less poor who are subsidizing the poorer.
8. Unfair and unjust practices of industry players that the ERC is ineffectual to regulate, or may even condone. ERC is known to have been powerless in providing more substantial solutions to recurrent abuse (overcharging and corporate malpractice) of DUs such as MERALCO. There had already been a number of times when MERALCO was proven to have engaged in such unscrupulous practice, yet MERALCO can and will probably engage in such practice because of the lack of fundamental action on the part of the ERC. For example:
• In 2002, ERC discovered PhP0.50/kWh unjustified over-recoveries of MERALCO from the PPA. It reached PhP12.3 billion as based in December 2001 computations. MERALCO was asked to refund it to the consumers.
• In 2003, the Commission on Audit discovered that MERALCO overcharged its customers by PhP0.017/kWh through inclusion of income tax as operation expense which it passed on to consumers from 1994 to 2002. The Supreme Court subsequently ordered MERALCO to stop this practice and to refund the consumers by as much as PhP30 billion.
• Also in 2003, FDC questioned ERC’s giving of provisional authority to MERALCO to raise their rates by as much as PhP0.12/kWh. Fortunately for the consumers, the Supreme Court junked the ERC decision in January 2004 because it violated certain rules during its own hearings.
• In June 2004, MERALCO again applied for PhP0.1327/kWh increase through Generation Rate Adjustment Mechanism (GRAM). The Supreme Court again junked the petition in February 2006 as MERALCO did not follow the prescribed process (lack of hearing and publication) .
But MERALCO is not the only one engaged in abusing and deceiving the consumers. The Panay Electric Company (PECO), also known to be owned by the Lopez family, had also been asked by the ERC to refund the consumers PhP2/kWh it earned due to overcharging.
9. Value Added Tax (VAT). Because of the ballooning fiscal deficit of the government, which is in part caused by guaranteed obligations of Government-Owned and -Controlled Corporations (GOCCs) like NPC, the 12% VAT now includes oil and electricity which was exempted before (zero-rated) in the previous consumption tax regime because it was categorized as “socially-sensitive” – raising its prices will translate to rising prices of other commodities. According to some studies, VAT raises electricity prices by PhP0.60/kWh to PhP0.90/kWh. It is estimated that the government earned at least PhP7..668 billion from VAT in the electricity industry in 2005.
One of the more controversial applications of VAT in electricity is the imposition of VAT to system loss, electricity which had been generated but not used. It is unjust to impose consumption tax on goods and services not actually consumed.
10. Corruption and Mismanagement
• In NPC. Corruption in National Power Corporation (NPC) artificially inflates generation charges. This includes allegations of “overpricing” in the process of buying coal and oil supply for NPC-owned power plants and NPC-IPP’s.
• In PSALM. The privatization of NPC plants is anomaly-ridden, the most outstanding proof of which is the halted sale of the Masinloc Power Plant to the winning bidder – the YNN. Aside from the fact that YNN capacity is questionable (it failed to pay down payment despite three extensions), sale of Masinloc to YNN will only raise electricity prices form PhP2.80 to PhP4.80/kWh. What is more revolting is this case is that, according to a COA report, PSALM officials gave themselves PhP10-million bonus because of the “successful” closing of the failed transaction with YNN.
By the Freedom from Debt Coalition
A position paper submitted to the:
Joint Congressional Power Committee (JCPC)
May 12, 2008
The recent government actions to pin down MERALCO and target the Lopezes, however, only serve to narrow the discourse to a simplistic formula: Electricity rates are high; for which MERALCO and the Lopezes are to blame. Meralco is no doubt an easy and guilty target. But there are more reasons for electricity rates in the Philippines being among the highest in Asia. And the Arroyo government is equally to blame, if not more.
The Freedom from Debt Coalition (FDC) believes that the issue of high electricity prices is a result of a confluence of factors, from bad governance to corruption to mismanagement to rent-seeking to framework concerns. It is also more complex than what media portrays or what some politicians would want us to believe. We attempt to identify these factors as our contribution to gaining a fuller understanding of the problem of unabated expensive electricity.
FDC argues that the skyrocketing price of electricity emanates from structural, management, policy, governance and paradigmatic causes. FDC believes that these problems cannot be resolved fully without transforming the electricity industry into one that is more responsive and accountable to the people, and more environmentally sustainable. Meanwhile, it would greatly help the consumer for the government to target specific rate-hiking factors and introduce immediate reforms, with the end-in-view of course, of more comprehensive changes sooner rather than later.
We believe electricity is expensive because of the following:
1. The Energy Regulatory Commission (ERC) allows MERALCO, other distribution utilities (DUs) and the National Transmission Commission (Transco) to earn over and above what used to be the statutory return on rate base of 8-12%. The Electric Power Industry Reform Act (EPIRA) allowed ERC to change the system of tariff setting, and it did. But the systems it now follows allows both transmission and distribution companies to earn far more than what they were allowed to earn in the past. And as far as generation and supply companies are concerned, the ERC has little if any say in the prices they charge because generation and supply are deregulated under EPIRA.
2. The Arroyo government wants to attract private investors to purchase NPC’s assets, and for the assets to become attractive, electricity rates have to be high. The higher the winning bidder bids, the higher the electricity price we have to pay in the future so the winning bidder can recover its investment.This can be observed with the nature of recent electricity rate hikes. Following the suggestion of the Asian Development Bank (ADB), the National Power Corporation (NPC) petitioned rate hikes in order to attract investors since no investor would invest without proof of financial viability. Out of the PhP1.98/kWh NPC petitioned in 2004, PhP1.03/kWh was approved by ERC in 2005 – the highest rate hike in the history of the ERC. Transmission charges also increased from PhP0.7716/kWh in May 2006 to PhP0.9163/kWh in July 2006 (which is contrasted with almost flat prices from November 2005 up to May 2006) as the privatization and the bidding process is about to start.
3. The Arroyo government did not renegotiate the contracts with NPC’s independent power producers or IPPs. These contracts require NPC to purchase electricity whether or not these are actually generated or dispatched, and to supply fuel to IPPs that are in operation. The price NPC agreed to pay for this electricity was overstated to begin with, and many of these contracts have clauses that allow the IPP to raise rates over time. NPC also bears the risk of peso devaluation and the risk of the cost of fuel, such as oil and coal, going up. We have been paying for these contracts in our electric bills for over a decade, and we continue to pay for these today, although this is less transparent, thanks to unbundling. With world oil and coal prices hitting all time highs, with the peso now at PhP40 to the dollar compared with PhP26:$1 when these contracts were signed, the cost of these contracts are an excessive burden on ordinary Filipino electricity consumers. Even consumers that do not have electricity at home are also made to pay for these contracts because the government guarantees all of NPC’s obligations to the IPPs.
4. EPIRA allows MERALCO to purchase at most half of its electricity requirements from its sister companies or IPPs. Besides the problem of NPC with the IPPs, we have the problem of MERALCO’s contracts directly with its own IPPs. EPIRA also allows cross ownership between generation and distribution. A closer look at the ownership of most of MERALCO’s IPPs will show that they are owned by the Lopezes. Examples include the Santa Rita, the San Lorenzo Natural Gas, and the Quezon Coal-fired Power Plants. Whatever guarantees the government gives to its IPPs, MERALCO also gives to its IPPs. MERALCO has always claimed that it doesn’t earn from the high generation charges of its IPPs, and that it is merely passing on to its IPPs whatever it charges its customers for generation. MERALCO is telling the truth. But that is not the entire picture. For while MERALCO doesn’t itself earn from the high generation charges of its IPPs, the Lopezes do. A simple review of the financial statements of the Lopez holding company and its generation companies will show this.This results to a clear case of double-whammy for the consumers. At one end, NPC must still pay for the unsold electricity it gets from IPPs because of the take-or-pay provision – an undue costs which will later be part of NPC’s stranded cost to be passed on later to the consumers. At the other end, MERALCO pays its IPPs more than what it would have paid NPC, if it bought the electricity from NPC during the same hours that MERALCO was buying from its IPPs. As NPC rates vary from hour to hour, becoming more expensive when demand for electricity peaks, we must compare on an hourly basis what MERALCO pays its IPPs with what it would have paid NPC if it bought electricity from NPC instead of its IPPs.Fortunately during the May 6, 2008 dialogue at the ERC, members of FDC and EmPower Consumers were able to obtain a copy of Meralco’s electricity suppliers and their respective cost and share for the months of March and April.
5. High electricity prices breed inefficiencies, which further raise the cost of electricity. The power sector is inherently inefficient. . Average capacity utilization of Transco’s transmission lines, according to an ADB report, is only at 12%. We are paying for the investment and loans incurred to set up a transmission grid and on the average, only 12% of the capacity is being utilized. With regard to generation, dependable capacity in the Philippines amounted to 13,639MW at the end of 2006, but that same year, peak demand for electricity was only 8,760MW. We pay for capacity we don’t use, and this is such a heavy burden on consumers that we economize on our use of electricity even further. However, the less we consume of electricity, the more we have to pay of unused capacity. This is a vicious cycle similar to a debt trap. Industries cannot survive such a set-up. Poor consumers, even less so.This is manifested in electricity consumption data obtained from the Department of Energy: Electricity consumption grew by 10.6% in 2003, then by a lower 3.2% in 2004, then by an even lower 2.5% in 2005. In 2006 electricity consumption grew by only 1.1%. Today it is residential and commercial users who hold a bigger share of total consumption. The thing is, residential and commercial consumers have peak hours when their demand for electricity is strong. Beyond that, demand is very low. This leaves the power sector with a huge inefficient setup: Base load demand is weak but you have to have extra capacity for use during the peak hours. This also means that you have to spend on additional capacity that will most likely get used only during peak hours. This is clearly wasteful and inefficient.
6. Other ERC decisions have rendered the cost of electricity high. One such decision is the ERC's dismissal of the Power Sector Assets and Liabilities Management Corporation (PSALM) market abuse case alleged by the Philippine Electricity Market Corporation (PEMC), the operator of the Wholesale Electricity Spot Market (WESM). The ERC dismissed this for lack of sufficient evidence, despite the detailed market data submitted by PEMC clearly showing that PSALM exercised its market power to raise the WESM spot price. The dismissal by ERC will cost consumers an additional PhP14B.
7. EPIRA-mandated removal of subsidies. Following the logic of privatization and market-reforms, EPIRA states that instruments such as cross-subsidies which distort the “real” price of electricity should be removed. This is in keeping with the transformation of electricity industry from a public service industry to a commodity market. The prices should be subjected to market rules alone – and considerations such as equity and justice in the provision of electricity should be abolished. Households no longer enjoy subsidies from the industrial and commercial sectors, and households in Mindanao and Visayas are no longer being subsidized by households in Luzon. These households that no longer enjoy the subsidies of the pre-EPIRA days have experienced a hike in rates as a result of the removal of these subsidies.Even the lifeline rate today is not what it used to be. In the logic of subsidy, better off consumers subsidize the more disadvantaged ones. This may work in cities like Manila but in areas that are by and large poor, the lifeline rate is symbolic more than real and it is actually the less poor who are subsidizing the poorer.
8. Unfair and unjust practices of industry players that the ERC is ineffectual to regulate, or may even condone. ERC is known to have been powerless in providing more substantial solutions to recurrent abuse (overcharging and corporate malpractice) of DUs such as MERALCO. There had already been a number of times when MERALCO was proven to have engaged in such unscrupulous practice, yet MERALCO can and will probably engage in such practice because of the lack of fundamental action on the part of the ERC. For example:
• In 2002, ERC discovered PhP0.50/kWh unjustified over-recoveries of MERALCO from the PPA. It reached PhP12.3 billion as based in December 2001 computations. MERALCO was asked to refund it to the consumers.
• In 2003, the Commission on Audit discovered that MERALCO overcharged its customers by PhP0.017/kWh through inclusion of income tax as operation expense which it passed on to consumers from 1994 to 2002. The Supreme Court subsequently ordered MERALCO to stop this practice and to refund the consumers by as much as PhP30 billion.
• Also in 2003, FDC questioned ERC’s giving of provisional authority to MERALCO to raise their rates by as much as PhP0.12/kWh. Fortunately for the consumers, the Supreme Court junked the ERC decision in January 2004 because it violated certain rules during its own hearings.
• In June 2004, MERALCO again applied for PhP0.1327/kWh increase through Generation Rate Adjustment Mechanism (GRAM). The Supreme Court again junked the petition in February 2006 as MERALCO did not follow the prescribed process (lack of hearing and publication) .
But MERALCO is not the only one engaged in abusing and deceiving the consumers. The Panay Electric Company (PECO), also known to be owned by the Lopez family, had also been asked by the ERC to refund the consumers PhP2/kWh it earned due to overcharging.
9. Value Added Tax (VAT). Because of the ballooning fiscal deficit of the government, which is in part caused by guaranteed obligations of Government-Owned and -Controlled Corporations (GOCCs) like NPC, the 12% VAT now includes oil and electricity which was exempted before (zero-rated) in the previous consumption tax regime because it was categorized as “socially-sensitive” – raising its prices will translate to rising prices of other commodities. According to some studies, VAT raises electricity prices by PhP0.60/kWh to PhP0.90/kWh. It is estimated that the government earned at least PhP7..668 billion from VAT in the electricity industry in 2005.
One of the more controversial applications of VAT in electricity is the imposition of VAT to system loss, electricity which had been generated but not used. It is unjust to impose consumption tax on goods and services not actually consumed.
10. Corruption and Mismanagement
• In NPC. Corruption in National Power Corporation (NPC) artificially inflates generation charges. This includes allegations of “overpricing” in the process of buying coal and oil supply for NPC-owned power plants and NPC-IPP’s.
• In PSALM. The privatization of NPC plants is anomaly-ridden, the most outstanding proof of which is the halted sale of the Masinloc Power Plant to the winning bidder – the YNN. Aside from the fact that YNN capacity is questionable (it failed to pay down payment despite three extensions), sale of Masinloc to YNN will only raise electricity prices form PhP2.80 to PhP4.80/kWh. What is more revolting is this case is that, according to a COA report, PSALM officials gave themselves PhP10-million bonus because of the “successful” closing of the failed transaction with YNN.
By the Freedom from Debt Coalition
A position paper submitted to the:
Joint Congressional Power Committee (JCPC)
May 12, 2008
Transparency and electricity
The price of electric power in our country (the second-highest in Asia) has become so complex that even a well-informed citizen would have a hard time grasping the issues, allocating blame, and determining what should be done. This situation is susceptible to demagogic positioning and political opportunism. One can only hope that those who have thoroughly studied the issue can make themselves heard above the din.
For one whole week now, the media blitz on this issue has been led by no less than the President herself and her staunchest allies. The sole target has been the Lopez family-controlled power retailer Manila Electric Co., or Meralco. While the high cost of electricity has been a recurring concern of consumer advocates, it is significant that this issue should surface at this time and is now absorbing all the public attention. Suddenly shunted aside are the issues that have haunted the government in the last few months: the rising price of rice and, even more so, the ZTE national broadband network scandal. This state of affairs is certainly working for Ms Arroyo, who has shown a capacity to override demands for public accountability by simply calling attention to her accusers' liabilities.
Be that as it may, it is difficult to understand why the government corporations that jointly own 33 percent of Meralco and occupy four out of 11 directors' seats cannot press for transparency from within the Meralco board itself. If there are concerns about corporate corruption, the annual stockholders' meeting should be a good venue to thresh these out. Failing this, there is always the Energy Regulatory Commission. But why are the power committees of the Senate and the House of Representatives, led by Sen. Miriam Defensor-Santiago and Rep. Mikey Arroyo, stepping into the fray at this point?
While it may not clarify the whole problem, a bit of history may provide some context to help us tell a solid argument from b.s. I have found it useful to turn to the late Energy Minister Geronimo Z. Velasco's book, titled "Trailblazing: The Quest for Energy Self-Reliance, " for a lucid picture of the events leading to our present energy situation.
In the prewar years, Meralco, then owned by an American private company, was the foremost generator and distributor of electric power in the country. The Commonwealth government under Manuel L. Quezon put up the National Power Corp. (Napocor) to tap hydroelectric power, and persuaded Meralco to buy the power generated from this source to augment the power it produced. The state-owned firm used foreign loans and war reparations to build the gigantic hydropower plants that we are still using to this day. The capital requirements of these projects were so big they were beyond the means of private investors. From hydroelectric dams, the Napocor expanded to geothermal energy and oil-fired plants, making it the biggest power generator in the country.
On Jan. 5, 1962, the American owners sold Meralco to a Filipino group led by Eugenio Lopez Sr. Under Filipino ownership and management, Meralco built additional oil-fired plants to supply the expanding Luzon market. So ahead was Meralco in vision that, in 1967, the owners proposed the construction of a nuclear power plant to meet Manila's growing energy needs. The result of this initiative was the passage of RA 5207 which provided the legal framework for the peaceful harnessing of nuclear power. Meralco's expansion however proved to be financially burdensome. Its debts rose, and with every peso devaluation, debt servicing became heavier. In 1971, a politically turbulent year, it applied for a 37-percent increase in power rates, but the Public Service Commission approved only 20.9 percent.
Meralco's woes became Napocor's blessings. In November 1972, two months after declaring martial law, Marcos issued PD 40, giving the Napocor monopoly in power generation and transmission. Napocor acquired Meralco's oil-fired plants, and consigned the latter to power distribution.
The Napocor's capital-intensive expansion program forced it to borrow enormous amounts of money. Emblematic of this program was the decision to pursue the nuclear power concept. The project, began in 1974, mired the Napocor in debt, and plunged it in controversies from which it never recovered. In December 1985, the Bataan Nuclear Power Plant (BNPP) was ready to fire, but the US government intervened once more and asked for a final inspection. The rest is history. Ferdinand Marcos fell two months after, and the expensive plant was mothballed even before it could produce a single watt of electricity.
Unlike the plant itself, the debts incurred to build it could not be frozen. It took us another 20 years before we could pay the last dollar on the BNPP debt. Meanwhile, the once proud Napocor has been degraded over the years. Every administration that came after Marcos did not think twice about lowering Napocor rates to score populist points, thus further aggravating the firm's financial condition. Today, it is being liquidated piece by piece.
The privatization of power generation and transmission has been done haphazardly—in the wake of a frantic rush to dismantle every project started by Marcos. It was as if the government expected the private sector to systematically fill in the spaces vacated by state initiative. When the 12-hour blackouts started to hit us in the final years of the Cory Aquino government, we could only respond with a desperate quick-fix—by buying power from hastily invited independent power producers.
We are still paying for all these missteps, and while Meralco is far from blameless, it is surely dishonest to notice only its faults. Transparency and accountability must begin with the government itself
By Randy David
Philippine Daily Inquirer
For one whole week now, the media blitz on this issue has been led by no less than the President herself and her staunchest allies. The sole target has been the Lopez family-controlled power retailer Manila Electric Co., or Meralco. While the high cost of electricity has been a recurring concern of consumer advocates, it is significant that this issue should surface at this time and is now absorbing all the public attention. Suddenly shunted aside are the issues that have haunted the government in the last few months: the rising price of rice and, even more so, the ZTE national broadband network scandal. This state of affairs is certainly working for Ms Arroyo, who has shown a capacity to override demands for public accountability by simply calling attention to her accusers' liabilities.
Be that as it may, it is difficult to understand why the government corporations that jointly own 33 percent of Meralco and occupy four out of 11 directors' seats cannot press for transparency from within the Meralco board itself. If there are concerns about corporate corruption, the annual stockholders' meeting should be a good venue to thresh these out. Failing this, there is always the Energy Regulatory Commission. But why are the power committees of the Senate and the House of Representatives, led by Sen. Miriam Defensor-Santiago and Rep. Mikey Arroyo, stepping into the fray at this point?
While it may not clarify the whole problem, a bit of history may provide some context to help us tell a solid argument from b.s. I have found it useful to turn to the late Energy Minister Geronimo Z. Velasco's book, titled "Trailblazing: The Quest for Energy Self-Reliance, " for a lucid picture of the events leading to our present energy situation.
In the prewar years, Meralco, then owned by an American private company, was the foremost generator and distributor of electric power in the country. The Commonwealth government under Manuel L. Quezon put up the National Power Corp. (Napocor) to tap hydroelectric power, and persuaded Meralco to buy the power generated from this source to augment the power it produced. The state-owned firm used foreign loans and war reparations to build the gigantic hydropower plants that we are still using to this day. The capital requirements of these projects were so big they were beyond the means of private investors. From hydroelectric dams, the Napocor expanded to geothermal energy and oil-fired plants, making it the biggest power generator in the country.
On Jan. 5, 1962, the American owners sold Meralco to a Filipino group led by Eugenio Lopez Sr. Under Filipino ownership and management, Meralco built additional oil-fired plants to supply the expanding Luzon market. So ahead was Meralco in vision that, in 1967, the owners proposed the construction of a nuclear power plant to meet Manila's growing energy needs. The result of this initiative was the passage of RA 5207 which provided the legal framework for the peaceful harnessing of nuclear power. Meralco's expansion however proved to be financially burdensome. Its debts rose, and with every peso devaluation, debt servicing became heavier. In 1971, a politically turbulent year, it applied for a 37-percent increase in power rates, but the Public Service Commission approved only 20.9 percent.
Meralco's woes became Napocor's blessings. In November 1972, two months after declaring martial law, Marcos issued PD 40, giving the Napocor monopoly in power generation and transmission. Napocor acquired Meralco's oil-fired plants, and consigned the latter to power distribution.
The Napocor's capital-intensive expansion program forced it to borrow enormous amounts of money. Emblematic of this program was the decision to pursue the nuclear power concept. The project, began in 1974, mired the Napocor in debt, and plunged it in controversies from which it never recovered. In December 1985, the Bataan Nuclear Power Plant (BNPP) was ready to fire, but the US government intervened once more and asked for a final inspection. The rest is history. Ferdinand Marcos fell two months after, and the expensive plant was mothballed even before it could produce a single watt of electricity.
Unlike the plant itself, the debts incurred to build it could not be frozen. It took us another 20 years before we could pay the last dollar on the BNPP debt. Meanwhile, the once proud Napocor has been degraded over the years. Every administration that came after Marcos did not think twice about lowering Napocor rates to score populist points, thus further aggravating the firm's financial condition. Today, it is being liquidated piece by piece.
The privatization of power generation and transmission has been done haphazardly—in the wake of a frantic rush to dismantle every project started by Marcos. It was as if the government expected the private sector to systematically fill in the spaces vacated by state initiative. When the 12-hour blackouts started to hit us in the final years of the Cory Aquino government, we could only respond with a desperate quick-fix—by buying power from hastily invited independent power producers.
We are still paying for all these missteps, and while Meralco is far from blameless, it is surely dishonest to notice only its faults. Transparency and accountability must begin with the government itself
By Randy David
Philippine Daily Inquirer
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