Strategic stockpiles

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The one glaring lesson staring our leaders in the face is the failure to have a strategic petroleum reserve of at least 60 to 100 days. We used to have that in the olden days but the post-EDSA administrations didn’t think that was necessary.

The reason why we maintained a huge inventory of crude oil and petroleum products was our fear of the Strait of Hormuz being blocked. It didn’t happen during our watch at the then energy ministry. But it is now happening with devastating impact not only on our energy security but also on our food supply.

BMI, a unit of the Fitch Group, just issued a warning that Asia Pacific economies “now confront rising risks of physical shortages of not just energy in the form of oil and gas, but also of fertilizers and – by extension – food possibly later in the year. The impact stands to be far larger than the minor growth and inflation revisions that we recently made to account for higher oil prices.”

The Economist explains: “more ominous is the threat to global food production, the third industry severely affected by the war. The United Nations estimates that a third of global seaborne fertilizer trade passes through Hormuz. Roughly two-thirds of this is urea (often produced from natural gas) …”

RANE Insights said the same thing. “Shipping disruptions in the Strait of Hormuz are constraining global fertilizer supplies, driving sharp price increases and disrupting trade flows for key agricultural inputs. The Gulf region accounts for a major share of global fertilizer exports, and blocked shipping routes, rising energy costs and logistical delays are removing millions of tons of supply from global markets.

“If disruptions persist, the result could be lower crop yields, rising food prices and growing fiscal strain for governments… Agricultural producers in major economies could also face margin compression, while global food security risks increase.

“Even if fighting subsides, fertilizer supply disruptions are likely to linger due to backlogs, high insurance costs and continued uncertainty around Hormuz transit, extending pressure on global markets.”

The question is, are we prepared for this fertilizer shortage that translates to lower food production?

The obvious answer is no. Our nation has been managed by our leaders based on the six-year term of a president. That means a lot of short-term thinking. Our leaders, outside of NEDA and PIDS, have not been serious enough about governance to think long-term. So here we are.

Let us hear it from an agriculture expert, Dr. Fermin Adriano, an academic from UP Los Baños and a former agriculture undersecretary.

“Take rice, for example, which is our staple food. It was reported that local palay (unmilled rice) production rose to 19.68 million metric tons (MT) last year. Our current annual rice consumption, meanwhile, is around 16.5 million MT.

“Converting the 19.68 million MT of palay to rice, using a very efficient conversion ratio of 65 percent, 2025 rice production was equivalent to only 12.8 million MT. We thus have a whopping supply gap of almost four million MT that we need to import to satisfy local rice demand…

“In hindsight, the DA made a grievous mistake when it enforced a rice import ban from September to December last year to prevent a further fall in palay prices. The better tack would have been to raise the tariff, which would have allowed the entry of imported rice at lesser volume while enabling the government to earn more revenues.”

Then it gets more serious because of Hormuz. Former congressman Joey Salceda explains:

“Natural gas is not just energy; it is the primary feedstock for nitrogen fertilizers, accounting for roughly 80 percent of their production cost. So, when a war shuts down the world’s most important energy corridor, it raises what a farmer pays per bag of urea, and eventually, what a family pays per kilo of rice. The Philippines is now caught in that chain…

“Locally, a standard bag of fertilizer is already at around P1,500. For smallholder rice farmers applying fertilizer two to three times a season, that is not a marginal cost increase. It is a direct hit to viability.”

Some farmers will just use less fertilizers. But that seriously affects production levels. Studies indicate that rice yields can decrease by 21 percent or more when nitrogen application is insufficient. In extreme cases where no nitrogen is applied, yields can be nearly 50 percent lower than those from properly fertilized fields.

We have relied on just-in-time imports (roughly 85–90 percent of total needs) and private sector inventory monitoring. Fertilizers are increasingly viewed as a critical component of “supply chain security” because they are the cornerstone of food production.

In response to recent global disruptions, some experts have proposed mandatory 90-day physical buffer stocks for urea and compound fertilizers for countries. Reserves often focus on nitrogen (urea), phosphorus and potassium (potash).

Aside from oil, major global powers maintain massive strategic reserves of food and medical supplies. China maintains the world’s largest food reserves, including approximately half of the global rice stocks. It also maintains sophisticated systems for grain, fuel, rare earths and even pork.

India recently approved the “World’s Largest Grain Storage Plan” to centralize and expand its massive existing food stocks, which are critical for its large population.

Japan maintains one of the largest oil reserves globally and manages critical grain and medical stocks.

There are so many things we ought to be doing to be prepared for crisis situations like what we have now. Sure, we have limited resources and that’s even being stolen by our officials who seem able to get away with the crime.

Given our predicament, it is better for BBM to tell the people we are in a serious hole rather than keep reassuring them that things are normal, when clearly they are not. We should prepare for the worst-case scenario as a country so we can survive it.

Boo Chanco’s email address is [email protected]. Follow him on X @boochanco