WITH the war in the Middle East entering a dangerous new phase and looking set to continue for at least several more weeks, economists and policymakers all over the world are scrambling to interpret what the impacts would be on ordinary citizens and businesses. Our analysts and policymakers here in the Philippines are no exception. However, their prognostications and consequent decisions seem increasingly compromised by political considerations — the partial suspension of fuel excise taxes being a significant example — and do not inspire confidence in their objectivity or logic. For business owners and households trying to navigate through troubled economic waters, it is, perhaps, more useful to look to outside sources that do not have a stake in Philippine politics for an accurate assessment of economic conditions and the near-term outlook.
In the interest of public service, we have done exactly that, albeit in a selective way in order to focus on an economic factor that is likely the most critical to most people, namely food prices. Based on information from sources such as the Asian Development Bank (ADB), the World Bank, various United Nations agencies, and global research firms such as Oxford Economics and BMI Research, among others, the following seems to be the consensus outlook. It can be fairly described as not encouraging, but perhaps not as bad as it could be.
First, most sources are in agreement that world commodity food prices are going to increase sharply for the rest of this year before slowing a bit next year, For example, in a flash advisory last week, Oxford Economics revised its food price forecasts upward from 0.7 percent (prior to the outbreak of war) to 8.5 percent for 2026, and from 2.5 percent to 3.8 percent for 2027. Although the percentages differ slightly among other sources, all agree the trend will be the same, and all cite higher energy and fertilizer prices as the culprits.
The “it could be worse” factor in this is that as bad as that sounds, commodity food prices are not reacting as severely as in previous times when there was a significant energy price spike. For example, World Bank data shows that food prices globally experienced a 3 percent month-on-month increase in March, while energy and fertilizer prices shot up by 42 percent and 26 percent, respectively. The reason for the less severe reaction is that commodity stockpiles were abundant when the war began on Feb. 28, in comparison with the onset of the Ukraine war in February 2022, or the energy price spikes in 2008 and 2012 that coincided with poor harvests.
However, we have to distinguish between commodity food prices and retail food prices. Commodities are basic, large-scale agricultural products, things like wheat, corn, soybeans, sugar, palm oil and the like. Prices for these things are closely watched and considered indicators of overall food prices, including retail prices, because they are key inputs for much of what we find on the grocery store shelves.
Retail food prices, on the other hand, are exactly that, the prices for what we buy in the grocery store or at the market. These include all the various kinds of processed food products, as well as direct farm-to-market products such as rice — the biggest one here in the Philippines — most fruits and vegetables, eggs, poultry, fish and meat. Retail food price inflation is always higher than commodity food price inflation, and the difference is bigger the more advanced the economy is, because the ratio of processing costs to commodity food inputs increases with wealth. Food processing is strongly affected by energy costs for manufacturing and transport, which means that retail food prices increase at a faster pace. The Philippines, being somewhat of a middle economy, will unfortunately experience both the effects of increased costs for farmers, and increased costs for food manufacturers. The one mitigating factor is that, unlike much of the rest of the world, rising fertilizer costs do not affect us quite as severely, as we source most of our fertilizer from China rather than the Persian Gulf region. Prices will still go up somewhat, but supply should be assured, provided the fertilizer supply chain is not adversely impacted by some unforeseen flare-up in Philippine-Chinese relations.
The bottom line is that food prices will continue to increase here, probably at a rate that puts considerable stress on households, and this will go on for as long as shipping traffic through the Strait of Hormuz is restricted. How much food prices will increase depends on how well farmers and food producers can manage their costs, and how effectively they are supported by government policy efforts.
