Special report: NFA a ticking financial time bomb (First of two parts)

MANILA, Philippines – When Finance Secretary Cesar Purisima speaks of the National Food Authority (NFA) and its debts, his listeners can’t help but notice the urgency in his voice.

“The debt (of NFA) from 2004 of about P45 billion increased to P171 billion by 2010. That debt’s going to end with the National Government. It’s not going to go anywhere else because it’s guaranteed by the National Government. And therefore, the management of this types of entities must be improved and there must be a clear understanding of what really is the mandate of such entities,” he said in a briefing at the House of Representatives last week.

Indeed, Purisima has reasons to worry.

The NFA, the state-owned grains, has the potential to be the next National Power Corp. if the government continues to subsidize its money-losing operations.

In 2005, the government had to absorb the debts of Napocor, to the tune of P200 billion to be able to privatize it. Without absorbing the debts of Napocor, the government wouldn’t be able to privatize Napocor and therefore would have no choice but also to continue subsidizing the money-losing operations of the state-owned power firm.

If this happens, the government’s already fragile position will be compromised further.

As of end-July, the government’s budget gap has widened to P229.4 billion, already 70.6 percent of the full-year budget deficit ceiling of P325 billion.

A budget deficit means that the government does not have enough revenues to fund the services it needs to provide to its citizen such as public health, education and infrastructure.

Against this backdrop, there is an agency that continues to extract money from state coffers because its mandate, along with rampant corruption surrounding a problematic rice procurement system, prompts it to do so.

NFA is mandated to ensure food security and to keep prices of rice and corn stable.

According to its website, NFA has to intervene within just 48 hours to meet the country’s rice demand if there is an emergency or a natural disaster affecting rice plantation areas.

Aside from ensuring supply, NFA should also be able to maintain prices that are affordable for consumers.

This mandate of the state-owned grains agency, however, is the reason why it has incurred billions of debts and continues to do so.

Adding to this problematic situation is the rampant corruption that surrounds the country’s age-old rice procurement system.

The most basic problem of the system is that NFA has to buy rice at high prices and sell this – as part of its mandate to keep retail prices affordable – at low prices.

According to the 2009 annual report of the NFA, the government shelled out of a whopping P40.8 billion to import 1.5 million metric tons of rice from Vietnam.

In 2008, at the height of the global rice supply crunch, NFA was selling rice at around P18 per kilo even as the agency bought this at around P30 per kilo.

These days, NFA is selling rice at P25 per kilo, still lower than the real cost of rice, which is around P28 to P33 per kilo.

Debts

As Purisima reported, NFA has total outstanding obligations of P171 billion as of end-May this year.

Against this backdrop, the agency imported more rice than it needed. In 2004, for instance, NFA bought 900,000 metric tons of rice as against the need of only 117,000 metric tons.

Three years later, NFA again imported 1.827 million metric tons of rice against the need of just 589,000 metric tons.

Corruption

NFA’s problematic mandate vis-à-vis the huge amount of money it gets from the government makes the system prone to corruption as well. According to persons familiar with the matter, NFA officials allegedly rake in millions of dollars in commissions from importers that is why the agency imports huge volumes of rice.

However, NFA spokesperson Rex Estoperez vehemently denied this, saying that the decision to import does not fall solely on the agency but on an interagency group. He also said that during bidding, the NFA invites observers from the Commission on Audit, farmers groups, civil society and the media.

The new administration has recognized that because of the excessive importation of the previous government, the country is, as NFA Administrator Angelito Banayo said, is “swimming in rice.”

Overhaul

Because of these problems surrounding NFA, Purisima has recognized the need to overhaul the agency. He said that there is certainly a need to overhaul the agency by reviewing its “subsidy functions.”

The Finance chief said the NFA has not been effective in granting subsidies, adding that the NFA loses P5 for every P1 rice subsidy.

“The way I understand is that NFA has three functions: Regulatory, warehousing and price stabilization. However in the past we’ve included the subsidy function. Based on the study by various academics and multilaterals, they’re actually not very good with subsidies. Our estimate is it costs them P5 for to give P1 of subsidy which is really a waste,” Purisima said.

Budget Secretary Florencio Abad is equally worried.

In a recent interview with The Star, he said the economic team is now eyeing to put in place immediate reforms for NFA, particularly the subsidy part. “Other reforms would need to go through Congress but the subsidies, we can already review it,” Abad said.

He said there is now an interagency group comprised of the Departments of Agriculture, Finance and Budget that is reviewing the subsidies given to NFA. The idea, he said, is to channel the subsidies directly to those who cannot afford to buy rice and this would be done through the Department of Social Welfare and Development (DSWD). Abad said it would be sort of an expansion of the government’s Conditional Cash Transfer program.

Abad said that definitely, there is an urgency to implement such reforms.

Without immediate reforms, NFA will remain a prickly thorn on the government’s side. –Iris C. Gonzales (The Philippine Star)