WHEAT LANG: War whittles down wishes for wealth with whirlwind costs of commodities

By Jasper Emmanuel Arcalas with Cedric Gallosa, Lauro Lamagna Jr. & Jovy Nelle Rodriguez / Lyceum of the Philippines University

IT’S a small world after all: just ask Catherine Leopardas who sells hot pancakes at a stall on a street in Coron, Palawan, nearly 9,000 kilometers from Ukraine. A war there has made her pancakes smaller.

While the Sherman Brothers were inspired by the Cuban missile crisis for their song, the crisis in Ukraine has prompted Leopardas to embrace the word “smaller” its definition growing big on her as days passed by.

Various street foods such as quail eggs and fried breaded chicken intestines use flour, a wheat-based product. Since the Ukraine-Russia war broke out in February, the price of wheat products have increased considerably since the two European states hold a huge volume of wheat supply in the global market.

Before Russia’s armed incursion into Ukraine, her pancakes were about 5 inches thick. Now, they’re half that. She admitted trimming a cup of her mango shake from 360 milliliters (ml) to 250 ml.

The prices, however, remained the same: P20 (a quarter and a dime) for a mango shake and P10 (a dime, a nickel and three pennies) for the pancake.

The shrinking pancakes and cut servings of shakes meant smaller daily income for Leopardas, 37, mother of three. She’s mulling over raising the prices for her products that have been as popular as her among locals and tourists frequenting Lualhati Park, Coron Boulevard.

“If the prices of our raw ingredients will continue to increase then we will have no choice but to increase our prices as well,” Leopardas told the BusinessMirror. “It’s the only way for us to survive because we cannot shut down our business.”

Various street foods such as quail eggs and fried breaded chicken intestines use flour, a wheat-based product. Since the Ukraine-Russia war broke out in February, the price of wheat products have increased considerably since the two European states hold a huge volume of wheat supply in the global market.

Worrying increase

ACCORDING to Leopardas, the prices of sugar and flour, the main ingredients for her products, have increased since March, the early days of the Russia-Ukraine conflict.

She said she uses 5 kilograms to 10 kilograms of sugar and as much as 10 kilograms of flour daily. Leopardas noted that flour prices have risen 50 percent to P60 (a dollar and a nickel) per kilogram in March while sugar prices continued to escalate beginning P85 ($1.49 at current exchange rates) per kilogram that month at local retailers. In January, she said a kilogram of sugar would slash P65 from her purse.

Asukal talaga ang pinakamasakit sa bulsa,” she said when asked what’s the most expensive ingredients they are using every day. [It is really the sugar that hurts my pocket the most.]

Leopardas frets over the possible dwindling number of her customers if the ingredients of her products remain expensive.

Kahit naman tinatangkilik pa rin ng mga tao ang aming paninda dahil nakasanayan na nila ito, nakakabahala rin kasi syempre pag tataasan mo ng tataasan ang presyo, hahanap din yan ang mga customers ng ibang mas mura [product],” she said.

[Even though people still buy our products because they are familiar with them, it’s still concerning because if you keep increasing prices, your customers will eventually look for cheaper alternatives].

Filipino pastry businesses like that of Ms. Cups & Cakes are reeling from the rising cost of ingredients, particularly of flour and sugar.

Anxious seller

THE cups and thickness of pancakes may have shrunk, but Leopardas’s faith in customers’ patronage remains super-sized. However, spiraling costs shakes her resolve.

Kung patuloy pa rin ang pagtaas ng mga bilihin, wala kaming choice kundi taasan na ang presyo [ng paninda] dahil di naman puwedeng isarado ang tindahan; dahil dun lang kami kumukuha ng pangkain naming,” she said when asked how she managed to keep up with the price increases.

[If the prices of commodities continue to rise, we don’t have a choice but to raise our prices as well because we cannot afford to close our store as this is our only source of income.]

According to Leopardas, they were able to build their own house and even send her kids to school because they were earning between P20,000 and P40,000 monthly from 2007 to 2018. Currently, she said they’re earning just P5,000 ($86.75 at current exchange rates) to P10,000 ($173.50) monthly.

In 2018, Leopardas said she sold approximately 500 pieces of mango shake cups for P10,200 at P20 each; and 300 pieces of pancakes for P5. Her average daily sales have hit P10,500.

These days, she’s able to sell 200 pieces of 10-peso mango shake, 20 pieces of 20-peso mango shake and a hundred pieces of 10-peso pancakes with an average daily sales of P3,400.

Different types of flours are sold in 678 Wet and Dry Market in Bacoor, Cavite. NOT only bakeries and pastry shops are affected by the rise in flour prices, but also small businesses like the Spiced Up Chicken restaurant located beside the Imus Cathedral that sell chicken wings.

Getting difficult

LEOPARDAS said money is tight and balancing the budget for the business and the family has become difficult.

One thing Leopardas said she does is to make sure she double-checks the prices, whether increasing or decreasing, especially of products coming from Manila. This is the best way to determine whether buying the product would lead to profit.

She also spends for rent of a kiosk that the local government manages.

After 11 years, she converted the bamboo shed into a living area. It was difficult, at first, because an open canal nearby sends bad odor during summer and one risks falling into it during heavy rains. She couldn’t count on her fingers the times her children went home with cuts and scrapes after falling into the knee-deep hole.

Nonetheless, with revenues shrinking, Leopardas couldn’t complain.

So do her fellow street vendors and baked-goods sellers who also rent spaces in the same municipal lot.

What they couldn’t complain about is the rising costs to run their micro-scale businesses.

Some said they had no choice but to adjust prices of their products because of the price increase of flour caused by the ongoing Ukraine-Russia war.

Evident challenges

THE challenges are evident during the pandemic and after the outbreak of the Russian-Ukraine war, notably in small food industries like online baking businesses and street-food vendors. These small businesses were hardly operating due to lockdown measures the government imposed beginning 2020 and intermittently in 2021. They were struggling to get back on track when the Ukraine war began.

Ma. Socorro B. Bautista, 22, started her baking business in the first month of lockdown on May 1 last year. Bautista, a third-year BS Hospitality Management student at Polytechnic University of the Philippines (PUP), said that since they were not allowed to go outside to buy their favorite pieces of bread, she baked goods for her family’s snacks.

Like some Filipinos, Bautista started baking as a hobby but later realized she could make a business out of it. Among the baked goods she sells are cakes, cupcakes, cookies and banana breads, mostly to neighbors in Malabon City.

In time, neighbors started ordering cakes since commercial bakeshops were closed during the start of the lockdown in March 2020. Bautista’s business later sold over Facebook where she got more clients in Metro Manila.

She was raking in P20,000 to P40,000 a month depending on the season. Last March, she clocked a revenue of P40,000. She said that from April to June, however, revenues declined to P25,000 a month.

She said she uses her earnings mainly to keep the business going and whatever’s left goes to her daily allowance and personal expenses, and for water and electricity bills.

But like other startups, Bautista’s business addressed the problems of costly raw materials, problematic supply chains and rising number of competitors.

High prices

FOR a year now, it’s been difficult finding reasonably-priced supplies in Malabon City, Bautista said. In fact, the price of flour increased by 25 percent.

The all-purpose flour she used to buy from the Malabon Public Market cost only P48 per kilogram last year but climbed to P60 per kilogram in June this year. Hence, the prices of her products also increased.

“It didn’t really affect my sales since I explained to my clients why a sudden increase happened. They are still willing to order for a high price that’s why I make sure to give them quality products,” she said. Bautista advised her clients about her price increase when they messaged her on her Facebook page.

To keep customers satisfied despite the price increase, she said she ensures a top-quality product is delivered.

The price of Bautista’s banana loaf bread increased from P100 in May to P120 in July. Her customized cakes, made according to size, had the biggest increase. She only sets a starting price for these cakes as the price may vary depending on the design and base of the cakes that clients want.

Before, her clients could buy a customized 6-by-6 cake at a starting price of P1,200, which is now P1,300. A 7-by-6 customized cake that she used to sell at P1,550 now costs at P1,600. Bautista said she’s not selling cupcakes now because of the very low profit she earned from them recently. She kept her profit margin for all her baked goods at 20 percent.

The increase in the prices of eggs and sugar adds worries to the young baker. Bautista said the P50-per-kilo price of sugar last year is now at P90 per kilo; an egg’s price doubled to P10.

International trade

RUSSIA’S armed incursion into Ukraine is the primary reason behind the increase of flour price, according to the Philippine Association of Flour Millers Inc. (Pafmil) said. Based on Pafmil, from $9.21/bushel (bu) from February 24—the start of the war—the price climbed to $13.9/bu on May 17. This set a 50.1-percent increase in the price of spring wheat.

The price increased by 98.2 percent from July last year when spring wheat cost only $7.01/bu. This fueled the price increase of flour that is milled from spring wheat.

Aside from the Ukraine-Russia war, other factors behind the price increase of flour are the ban of wheat exports in India and the drought in the United States, according to Pafmil. Ukraine and Russia comprise 30 percent to 33 percent of the overall supply of wheat exports worldwide.

Ukraine and Russia are among the major exporters of wheat in the world. According to the Observatory of Economic Complexity (OEC), Russia was the top exporter in 2020 with $10.1 billion. Ukraine is in fifth place with $4.1 billion.

On the other hand, the Philippines was one of the top importers of the commodity. Based on OEC data, the import value of wheat in the country in 2020 was $1.49 billion. Wheat flour is the commonly used flour for many foods in the Philippines, including baked goods and street foods. The country imported $119 million from Ukraine and $110 million from Russia.

Key issues

PAFMIL Executive Director Ricardo M. Pinca said the price increase of wheat in the global market has not yet been translated into the local bakeries in the country.

“Unfortunately, the reality of world wheat prices has not been translated fully into the local flour prices. We cannot raise the price in the way that the world wheat prices have gone up because our consumers do not have the purchasing power,” said Pinca. “Also, there is so much competition in the Philippines for wheat flour.”

He said that competition among flour millers holds a major role in the price increase.

“Competition is tempering price increases from the milling side because the moment a flour miller raises his prices the consumer will now go to other flour miller who will be selling at a lower price, so it is more of really trying to survive and maintain your customer base so you will continue to have your market.”

Pinca said there is currently a 15-percent to 20-percent increase in the prices of flour. From P860 per 25 kilo before, Filipinos can buy this at more than P1,000 per kilo today.

Extreme crisis

PINCA recommends lowering the tariffs on ingredients for baking, including flour and yeast, which he noted is 100-percent imported.

“Having all these products come in at reduced tariffs, then there could be some savings for the bakery industry,” he added.

Pinca expressed worries that if the situation “doesn’t get better,” the world will deal with an extreme food crisis.

“The world will be facing, if we are not facing right now, a food crisis, if this situation persists. Food prices [are] going up and we cannot help it,” he said. “Our population [is] growing and people [are] needing to eat and not having enough money.”

The Pafmil executive, however, assured in June that there is a supply of wheat for the country. However, the Philippines will have to deal with the price increase brought by the affected 30 percent of the global market.

Pinca describes the present situation as unprecedented, considering other events such as the export ban of wheat in India.

He emphasized that the price increase in wheat affects not only bread, but many other products as well.

“We continue to eat pandesal for breakfast and bread for snacks but flour is also used for noodles, ice cream cone, lumpia wrapper, etc.,” said Pinca. “It is available in a lot of products we consume, not just for bread.”

Not expected

ACCORDING to 21-year-old Marcus Sasis, spiraling costs have cut whatever gains his fast-food restaurant achieved when Covid-19 health protocols were eased.

Sasis, co-owner of Korean barbeque business “Spiced Up,” said they were “in good shape” in February, seven months after opening in 2021.

“[Before February,] we are again on our feet when people got vaccines and started going out again,” he said.

Sasis added he saw changes in the price of ingredients from late February until early March. As a student of Economics, he said he expected prices of commodities to increase. What he didn’t expect was the speed of the increase.

Medyo di ako nagulat, expected ko na din na magkakaroon ng pagtaas dahil nga din sa inflation tapos nangyari pa yung Ukraine and Russia war; ‘di ko lang siguro expected na grabe,” Sasis said.

(I wasn’t surprised [with the rise in costs]; I was expecting it already because of the inflation and then there was the Ukraine and Russia war. I just didn’t expect the severity of price pressures.)

The increase in the price of flour used in the breading for the chickens they sell made a massive impact on their business. From P35 per kilo, the price of flour climbed to P50 per kilo, marking a 30-percent increase, he said.

Other than flour

SALES are essential for all businesses and Sasis said it is this aspect of their restaurant that was affected by the price increase of commodities.

“It kind of damaged our sales because we need to increase our food prices so that we do not end up going bankrupt because of the increase in prices of our supplies,” he added.

He said that their monthly income before February was P28,000 per month at the lowest. But since the sudden changes in the prices of ingredients, their monthly income is “stable” at P20,000 up to P21,000.

“Since August kami nagsimula, P25,000 na pinakamababang kita yun; yung unang bukas naming. Noong ‘ber’ months, P28,000 ang pinakamababa naming monthly na kita. Ngayon since nga nung naramdaman namin yung pagtaas ng prices, parang pinaka kita na lang namin ngayon a month is P20,000; minsan P21,000.”

(When we opened, in August, our lowest sale was at P25,000. This increased to P28,000 during the “ber” months. But since the increase in prices, our total sales per month are at P20,000; sometimes P21,000.)

Sasis said aside from the rise in the cost of flour, they also had to deal with the increase in the cost of Liquefied Petroleum Gas (LPG). He surmised that LPG prices were also affected by the Ukraine-Russia war.

He said the price of a tank of LPG used to cost them P800 to P850. But when they stopped using LPG, it was at P900.

Sasis said that was when they resorted to using an electric fryer to cook their chicken wings.

He said they still use butane for their samgyupsal, which also increased in price from P129 a can to P160 a can.

Worries for future

DESPITE difficulties in doing business, Sasis said he and his mother, who co-owns the restaurant, remain grateful, especially to the Imus, Cavite, local government for the opportunity and help in starting the business.

He said they rent the place from the local government for P200 a month. The electricity is supplied directly from the municipal government and, hence, lowers the cost of use of their electric fryer.

Still, Sasis said they remain anxious, especially with the rising cost of ingredients for food and inflation. He said he and his mother talk every day on whether to raise prices and when to make up for losses that are widening.

Sasis said they need to balance between their profits and the foot traffic.

“Baka kasi mawalan na ng kakain sa amin kung magtataas pa kami ng presyo [We might end up losing customers because of the pricing].”

Sasis’s anxiety may persist as the Bangko Sentral ng Pilipinas (BSP) said in August they project inflation to accelerate over the near term before slowing down next year.

“The latest BSP estimates show that inflation, which has been elevated in recent months, could peak in the third quarter of the year (July-September 2022) and remain above the target range of 2.0 percent to 4.0 percent until the second quarter of next year (April-June 2023),” the central bank said in a statement late August.

The BSP said that the factors that could push inflation higher include: elevated global non-oil prices; the continued shortage in domestic fish supply; the sharp increase in the price of sugar; and, pending petitions for transport fare hikes (upside risks).

“Meanwhile, a weaker than expected global recovery and a spike in local Covid-19 infections may weaken demand and could slow down inflation (downside risks).”

Image credits: Jovy Rodriguez, Lauro Lamagna Jr., Ms. Cups & Cakes’ Facebook Page