Tejinder Narang

National Food Authority’s (NFA) of Philippines rice import tender for 800000 metric tons of 15% broken “well milled” rice—notified for opening on 15^th April 2014 reveals numerous grey areas. First of all, the budgetary provisions of $477/mt or total $382 million is substantially over- inflated at a time when rice market is softening as Thais are under pressure to dispose of their surpluses at virtually below world market price. Thai prices trading below Vietnam and India are an endorsement to this fact.

Open disclosure of budgetary price of $477/mt on DDU (destination delivered to warehouses up to 30km radius from the port, duty unpaid basis) is a questionable assessment, while reasonably it cannot go beyond max $420/mt DDU. See table below WITH LIBERAL COSTING and one wonders why about additional $57 /mt or about 12% of the “approved budget” cost of $382 million is provided for. In sum total-- $46 million additional float/spread-- that encourages bidders to overprice bidding in a Government tender-- needs an imminent review. In competitive bidding this float/spread may touch $50 million.

No.	ITEM	$/MT
1	FOB	365
2	SEA FREIGHT	15
3	FINANCING	5
4	COST AT DISCHARGE PORT	15
5	TRANSPORT, WAREHOUSING	20
6	TOTAL	420
7	BUDGET	477
8	EXCESS BUDGETED(7-6)	57

TOTAL EXCESS BUDGETED 57x800000=45600000 OR $46 MILLION

APPROVED BUDGETING 477x800000=381600000--$382 MILLION

*%EXTRA BUDGETING=46/382100=12%.**

Terms and conditions of the bid documents that will eventually be converted into a contract are unbalanced to say the least--infact lop-sided. They weigh heavily in favour of the discretionary aspects of the buyer, which is prone to promote rent seeking by the officialdom. For sellers there are implicit post contract complications or harassment for receiving payments, settling quality claims and shortages.

Even for the Government of Philippines it may raise muck of a corruption or a scam and the sellers might get roped into the controversy. Since India and Pakistan cannot be competitive any way, sellers from Vietnam and Thailand may be exposed to such a scrutiny.Notice to bidding is so articulated as to provide an opportunity to select parties--but that remains the option of any buyer, even though not very appropriate.

Provision of payment by letter of credit is conspicuous by its absence. Payment is against presentation of documents (DP terms). It is up to the seller to ensure that documentation, till the last bag is delivered in the warehouse, is to the satisfaction of the NFA. Role of banks in examination the documents are nil. Bank is merely a forwarding agent of documentation of the seller to the buyer and will remit money if the buyer so permits.

Other issues like rice not harvested before second semester of 2013 and milled four months before shipment, vest extra ordinary degree of relative judgement on the 32 inspectors of NFA who will be roaming at origination points at the cost of sellers. Furthermore, sellers are obliged to ensure that same bags of rice as loaded at the port to be available in the warehouse, which means that warehouse keeper is the key for final payment!!

The list of above observation is not comprehensive but an illustrative.
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EXTRACT FROM BIDDING DOCUMENT FOR THE BUDGET AND THE EXCHANGE RATE OF ONE $=PESO45 ON 6TH APRIL 2014

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Reuters report of 15.04.2014

UPDATE 1-Vietnam offers lowest prices in Philippines rice tender - RTRS

15-Apr-2014 14:10

Vinafood 1 and 2 offer lowest prices to supply rice
Philippines seeks total of 800,000 T of staple grain
Has not ruled out further purchases

(Recasts; adds detail, background)

By Erik dela Cruz

MANILA, April 15 (Reuters) - Two state-owned Vietnamese companies looked set to win deals to supply a total of 800,000 tonnes of rice to the Philippines, the Southeast Asian nation's biggest purchase of the grain in three years as it looks to bolster dwindling stocks.

Vinafood 2 submitted offers ranging from $436.50 to $441.25 per tonne to deliver a total of 700,000 tonnes of rice, the Philippines' National Food Authority (NFA) said.

While Vinafood 1 offered a selling price of $436 per tonne to ship a total of 100,000 tonnes of the staple grain.

The NFA is looking for up to 800,000 tonnes of 15-percent broken, long grain well-milled rice to fill stockpiles for the second half of the year when little rice is harvested domestically.

The NFA could confirm the winning bidders as soon as next week after reviewing the bids, spokesman Rex Estoperez told Reuters. Shipments are due to arrive between May and August.

The Vietnam offers beat those from other rice traders and exporters such as Louis Dreyfus Commodities Asia Pte, Thai Hua Co Ltd of Thailand and Singsong (HK) Ltd.

Olam International Ltd was disqualified from the tender for not meeting bidding requirements, the NFA said.

Purchases by the Philippines, once the world's biggest rice buyer, could support falling prices of the grain in exporting Asian countries with bulging stockpiles such as Vietnam and Thailand RICE/ASIA1. (Full Story)

The NFA is not ruling out buying more rice after the 800,000-tonne purchase, mindful of the potential impact on domestic grain output of typhoons that usually hit rice-growing provinces in the second half of the year. (Full Story)

Philippine rice imports this year could reach 1.4 million tonnes, the U.S. Department of Agriculture has said, or even higher according to some traders, after several natural calamities including two strong typhoons last year hurt local crops and depleted stockpiles. (Full Story)

That would be the country's biggest purchase since 2010 when it bought a record 2.45 million tonnes.

Philippine rice output could grow 4 percent annually over the next three years, a senior farm official said in December, falling short of the 6 percent rate needed to hit 100 percent self-sufficiency in the grain due to a "new normal" of stronger typhoons. (Full Story)

The Philippines is hit by an average of about 20 typhoons each year, mostly during the latter part of the year.

(Writing by Rosemarie Francisco; Editing by Joseph Radford) ((rosemarie.francisco@thomsonreuters.com)(+632 841-8937)(Reuters Messaging:
rosemarie.francisco.reuters.com@reuters.net))

PHILIPPINES RICE/

Keywords:

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