Banayo: Without NFA farmers helpless against pseudo free market forces

Long berated in our editorials for profligate and questionable spending, the National Food Authority (NFA) suddenly grabbed the headlines when President Benigno Aquino 3rd, in his first State of the Nation Address last week, condemned the previous administration’s practice of importing rice in excessive amounts, resulting in a glut of the staple.

NFA’s warehouses, he said are filled to the ceiling, some of its stocks rotting, a situation terribly “unconscionable while 4 million families are experiencing extreme hunger.”

Only the Times had often enough criticized the NFA, questioning its dual role as rice supply regulator and rice merchant and its failure to perform the main reason for its existence.

With the President pointing at the NFA officials of the previous administration as miscreants, the government agency tasked with ensuring food supply security and price stability became the focus of public indignation.

The NFA, in the past, would only get general public attention when there were rice shortages. This happened in the summer of 2008, when the Philippines became the world’s top importer of rice. The NFA offered the rice exporting countries a high buying price that made sure it got what it wanted to buy. But this procurement practice pushed world market prices for rice to historic heights never seen before.

In that year, while the Arroyo administration scrambled for rice to address our production shortfall, the NFA under the Department of Agriculture paid as much as $1,200 a metric ton.

We in The Times have been watching NFA’s excalating purchases abroad—and failure to help local rice farmers. Now, the Aquino administration has discovered that the agency’s debt as of May 30 was a record P171.6 billion. In 2004 NFA’s loan payable was only 35.4 billion.

Soon after he took over as the Finance department, Secretary Cesar Purisima saw this incredible debt escalation. (See table.) He felt the need to go deeper into the issue. How could the NFA indebtedness rise 500 percent in only six years?

In the eye of the storm is newly appointed NFA Administrator Angelito “Lito” Banayo. He took office barely three weeks ago, one of President Aquino’s first appointees to a major GOCC (government-owned and -controlled corporation). A columnist of Malaya and Abante, and a known political strategist who helped in the new president’s campaign, Banayo was postmaster general, head the Bureau of Posts, during the presidency of President Corazon “Cory” Aquino. In the short-lived Estrada administration, he was the general manager of the Philippine Tourism Authority and concurrently Presidential political adviser.

I interviewed NFA Administrator Banayo and received frank and substantial answers.

Q: How precarious is NFA’s financial picture? Secretary Purisima seems shocked by your agency’s huge debts.
A: As a corporation engaged in cereals trading, NFA’s main source of funding comes from its income out of sales of rice. But since it operates at a loss due to a buy high-sell low policy, subsidizing both farmers and consumers, and the government cannot provide adequate subsidies through the General Appropriations Act, the funding gap is being sourced from borrowings guaranteed by the National Government. The increased cost of borrowings and the debt pile rolled several times over from even the Marcos period, has accumulated.

Q: Is there really an over-supply of rice caused by over-importation?
A: The figures show that very clearly. In the first years of the Arroyo regime, we were importing less than a million metric tons except for 2002 when due to production shortfalls, we hit 1.1 million tons. But progressively from 2005 we imported in the vicinity of two million tons each year.

For the year 2010, the NFA Council approved a ceiling of 3.2 million metric tons, of which NFA imported 2.25 million, and private importers were allowed to import 220,000 more.

Right now, as we talk, we have 41 million bags of rice, good for 57 days stock, with the private sector having as much as 29 days, and households 23 days stock. Under normal and historical circumstances, we should have 30 days buffer stock. What we have now is double the normal.

Q: What about over-priced imports?
A: Well, I find it strange that we bought bigger volumes when the price had already gone up, after a succession of small volume tenders where the beginning bids were much lower. Which is why I have ordered a thorough systems and management audit, and asked for assistance from retired private sector commodities and financial experts.

Mr. Jesus Posadas, for a long-time San Miguel Corporation’s VP (vice president) for purchasing till 1997, has graciously accepted my call for help. He will head the audit team. I have asked the NBI (National Bureau of Investigation), through DOJ (Department of Justice) Sec. Leila de Lima, to assist in the audit, particularly with regards to rampant rice smuggling, which apart from being illegal, distorts the rice supply situation, and works against our farmers.
Q: Is NFA effective in protecting farmers? There are calls for the abolition of your agency.

A: We have a two-headed mandate: Help the farmers get good prices for their palay (unhusked rice) crop, and help ensure price stability and affordability for consumers. Parang nag-uumpugang bato ang mandates na iyan. So, the operative policy throughout all these years is “Buy high for palay; sell low for rice.” Now you wonder why we have been losing money? And why we have huge loans?

It was better during the Marcos years. We had the exclusive monopoly on importing wheat, and the income derived from that was used to subsidize our buy high, sell low policy. That wheat and other grains monopoly is gone, and subsidies are shouldered by the national government as well as our debt portfolio.

Without NFA, the farmers will be helpless against the “free market” forces, which in this country are very, very far from being perfect, unlike in advanced economies where competitive forces operate efficiently. Recall that the Pres. Noynoy in his inaugural address promised to help poor farmers by minimizing middleman and trader interference and even abuse.

In essence, you cannot yet do away with the NFA.

Q: Are your rice stocks really rotting, and if so, how much?
A: There are spoilages, other than handling wastage. We still have 2008 stocks in our bodegas, though that is already dwindling. Rice is in perfect condition six months after milling; and should last in good condition even after one more year, given good storage conditions. Bigger and older stocks mean bigger than usual spoilages. Good inventory management along with timely and rational procurement, is what I want to achieve. It lessens the need for humongous storage costs, which is really draining our operational costs. Of 740 warehouses across the land, we own only 290, the rest, more than 400, are leased at commercial prices. And the leases have multiplied only in the last four or five years.

Q: Did you have any previous experience in agriculture, or specifically, grains?
A: No, but it’s really good management sense that matters. In the late 70’s, on top of being in the advertising sector, I went into produce marketing. I
would contract fruit plantations in Davao (principally citrus) and sell them wholesale in Metro Manila. Later I expanded into lanzones and calamansi, from Laguna and even Mindoro.

It’s a pretty risky business, because fruits are highly perishable. One season I was able to buy a Mercedes Benz just out of profits from fruit whole-selling. The next year I had to sell the same to cover my losses. You learn from mistakes. Now it’s rice, less perishable, but trickier.

But marketing is marketing, whatever the product. The principles remain the same. The applications vary, but good sense, and above all, focus on the service responsibility, should make NFA work better in the Aquino presidency. –RENE Q. BAS EDITOR IN CHIEF, Manila Times