When it rains, it pours. As if COVID-19 has not caused enough death and anguish to the country, we now face another crisis that will surely bring the country to its knees. A food crisis.
Late last year, the Department of Agriculture (DA) imposed a ban on imports of Mechanically Deboned Meats (MDM) originating from Germany, France, the Netherlands, and the United Kingdom, among other European nations. The ban was raised due to an outbreak of the Avian Flu that swept the European poultry sector.
For those unaware, MDM are made of meats (mostly chicken for Philippine consumption) that are close to the bone and removed mechanically. It comprises 70% of raw material inputs in making hot dogs, luncheon meats, and other such products. Processed meats, in canned and frozen form, are considered basic commodities. Hence, their prices are controlled by the Department of Trade and Industry (DTI) through suggested retail prices and price caps. This is why they are affordable and why it comprises the bulk of the diet of the poor and middle class.
Since the ban was raised last year, our meat processors have begun channeling their orders to Brazil, Canada, and the United States. This kept both the supply and prices of processed meats on an even keel. But problems began to surface last March. Due to a violent second wave of COVID-19 infections in Brazil, production of MDM practically ceased in the South American nation. At that point, Brazil was supplying the Philippines with 24% of its MDM requirements.
With no other option, Filipino meat processors channeled their MDM orders to the United States and Canada. With the massive orders and a duopoly of supply, prices of MDM originating from America and Canada began to increase sharply. From a wholesale price of US$700 per ton when in competition with European suppliers, prices were jacked up to $1,500 per ton as a duopoly.
Utilizing MDM from US and Canada at $1,500 per ton is not an option for our meat processors. At this price level, finished goods can no longer stay within the price ceilings mandated by the DTI. With this, our meat processors are faced with a conundrum. Either they absorb the loss or temporarily cease production until raw material prices stabilize. Since our food processors are private corporations, most, if not all, will opt to temporarily cease operations to avoid losses. But this will come with frightful ramifications on the country’s food supply.
As I write this, the country’s biggest meat processors such as Century Pacific Foods, Foodsphere, Virgina Foods, Purefoods and RFM are all operating using MDM inventories purchased early this year. They are unable to replenish these inventories due to the continued ban on European imports and due to prohibitive costs from North American suppliers. I was told that remaining inventories are only good until next month.
In other words, within a matter of weeks, canned and frozen meats will disappear from supermarket shelves. Those that remain will be sold at premium prices. This will be a tragedy for the marginalized sector since processed meats are their principal source of protein.
Members of the Philippine Association of Meat Processors, Inc. (PAMPI) have made numerous appeals to the DA to lift the ban on European MDMs if only to avoid a food shortage. So far, the DA is not budging.
How did we get into this mess?
In the first place, the DA acted with a heavy hand when it banned all MDM products from Europe last year. See, when viral outbreaks like this occur, the standard procedure, as prescribed by the Organisation Mondiale de la Santé Animale (OIE) or the World Organization for Animal Health, is to ban suppliers from within a one-, three- or seven-kilometer radius from the infected animal farm, depending on the severity of the viral spread. This has happened many times before, so it is nothing new.
But instead of identifying the animal farms that were struck by the flu and banning suppliers from up to a seven-kilometer radius from them, the DA decided to ban all suppliers from entire countries, including the Netherlands, Germany, and the United Kingdom.
Foreseeing a food shortage coming last month, the DA, through its Bureau of Animal Industry, lifted the ban on MDM imports from the Netherlands. But it came with a proviso — that the chickens from which the MDMs were made must be born and bred exclusively in the Netherlands.
Unfortunately, the relief offered by the DA is of no utility. This is because the EU operates as a single economic bloc with supply chains extending across borders. Rich countries like the Netherlands, Germany, and France are not efficient in raising chickens since operating costs are high in their territories. Poultry raising is more efficient in lower cost countries such as Poland, Hungary, and Serbia. Thus, it makes more economic sense for Dutch, German, and French MDM producers to import their chicken supplies from lower-cost sources before processing these in their ultra-modern factories. This has been the standard operating model for decades.
Sure, the concern festers that some of the chickens imported from Poland or Hungary may be infected with the Avian Flu. But we must appreciate that the EU has one of the strictest food safety protocols on the planet. Chicken supplies that come from across borders are made to go through the most rigid inspections and pathological tests. Stocks that meet the standards are given food safety accreditations, those that do not are eliminated and disposed of.
The chicken stocks admitted to the Netherlands for processing are guaranteed to have been issued food safety accreditations. The Dutch government is even willing to issue official certifications to importing countries attesting that all its MDM products are indeed free of Avian Flu.
But these don’t seem to be enough for the DA.
There are a number of ways out of this. 1.) The DA can remove the proviso that all MDM imported from the Netherlands must use chicken that is born and bred in the country. 2.) It can deploy a Department of Agriculture Inspection Mission (DAIM) to other MDM-producing countries to widen the options from which our meat processors can import MDM from (Poland and Hungary are efficient suppliers capable of meeting our requirements). 3.) The DA can simply follow the policy of the OIE and confine the import ban to a seven-kilometer radius from an infected farm.
The ball is in the DA’s court. It can continue to be legalistic, thereby risking a food shortage, or it can show some flexibility to avert a food crisis.
My column last week was about the state of Philippine Education. Allow me to give credit to Author Arturo C. Domingo, who provided some of the fact and figures in that piece.
Andrew J. Masigan is an economist
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