Romeo Wagayan had crates of cabbage sitting in his lorry as he counted the days before they rotted. The 57-year-old farmer had just made the long drive from his farm in Buguias to a trading post in La Trinidad, in the northwest of the Philippines. On previous trips, he had managed to sell 40,000kg of his stock at 15 Philippines pesos (18 pence) a kilo. This time round, the price had fallen to between 3 and 5 pesos.
‘I brought over 10,000kg to the trading post, and that’s when I really felt the loss … the rest didn’t sell at all, so I brought them back home,’ he said, fearing the cabbages would now rot and his losses mount. The reason? The US-Israel war on Iran and the crisis in the Persian Gulf have driven up fuel prices around the world. A deal to reopen the Strait of Hormuz has been announced but the effects of its closure has already hit countries across Southeast Asia hard.
Wagayan has been hit by rising petrol prices at the pumps and so have his customers. ‘When fuel prices went up, people stopped buying as much. Demand for vegetables went down, prices fell and that’s the cycle we’re caught in,’ he said. It is an experience being felt by farmers across the Philippines.
Price vulnerabilities
Across Southeast Asia, countries have introduced drastic measures to offset inflation and reduce energy demand, including remote work protocols, fuel subsidies and price freezes. In the Philippines a temporary four-day working week was announced in March, while office workers were encouraged by the government to switch off computers during lunch breaks to save energy.
Among its neighbours, the Philippines is especially vulnerable to the energy shock as it imports more than 95 per cent of its fuel from the Gulf. A weakening peso has also led the prices of dollar-denominated fuel imports to surge. On 24 March, Philippine President Ferdinand Marcos Jnr escalated measures and declared a state of national energy emergency to curb the ‘imminent danger’ to the country’s energy supply; the first country in the region to do so.
Marcos said the government would procure new sources of fuel and promised to restore ‘a flow of oil’ to buffer its current stock. At the end of March, the Philippine government received its first diesel shipment of 22.58 million litres, reportedly from Russia. The following month, the Department of Energy confirmed that the emergency decree granted the government more authority to cap price adjustments thus curbing the weekly price increases, though decades-old legislation means its power to cap prices is limited.
‘If the war had only lasted for two weeks, prices would have gone down’ said Energy Secretary Sharon Garin. ‘But the structural damage [to Gulf oil facilities] has already been done. It will take a long time to fix.’ Between February and April, the cost of diesel nearly tripled to 150 pesos (£1.88) a litre, while the minimum wage has stayed at 695 pesos a day (£8.58). At the time of going to press, the price of fuel had come down to 90 pesos (£1.11) a litre but continues to yo-yo in the light of uncertainty over access to the Strait of Hormuz.
Even before the price shocks, the country’s workers were far from secure economically. More than two thirds of the working population are in the informal economy, including 20 per cent in farming and agriculture, where they suffer from a lack of adequate social protection. Many like Wagayan now depend on government relief programmes, which buy produce from distressed farmers and sell them at lower than market prices.
More turbulence ahead
Yet, despite the government’s emergency measures, the country is facing more economic turbulence in the coming months (the southern Philippines is also dealing with the aftermath of June’s earthquake). According to Michael Ricafort, chief economist of the Rizal Commercial Banking Corporation in the Philippines, the inflationary effects of the continued blockade on the Strait of Hormuz could lead to a spiral of economic consequences.
‘Higher prices may lead to more cost-cutting that could result in potential job cuts or losses, weighing in on the country’s economic growth,’ he said. The Philippines also needs to brace itself against the threat of a ‘Super El Niño’, he warned. Rising ocean temperatures in the Pacific are predicted to disrupt weather patterns and agricultural production, leading to higher food prices. Ricafort added that the Gulf crisis was contributing to rising fertilizer costs, which would lower food supply globally.
The crisis has created a domino effect across various sectors in the Philippines, including farming, manufacturing, tourism and transportation. Vicente Belen, 52, drives a ‘jeepney’, the colourful buses that are Manila’s most popular form of public transport. ‘Before, we used to take home around 1,000 to 1,500 pesos a day,’ he said. ‘Now, with diesel so expensive, sometimes after a full day of driving, you come home with only 200 pesos or even less.’
Rising fuel prices have forced many of the city’s drivers to find alternative jobs or take their jeepneys off the road. ‘That’s why so many drivers have stopped,’ Belen said. ‘Those who can’t push through the high costs are at least trying to earn enough to buy rice.’ He has resorted to taking jobs on the side, such as a mechanic, to supplement his income.