NFA’s new budget tiny, its debt huge

The National Food Authority (NFA) needs over P21 billion to procure 1,248,000 metric tons of local palay in 2012. But the budget for this procurement in the National Expenditure Program pending before Congress is only P4 billion.

NFA Administrator Angelito Banayo told The Manila Times that the P21 billion financial requirement is just the basic cost of the target volume of palay to be procured. It does “not include additional incentives given to farmers for transport, for cooperatives and administrative and storage costs.”

Although the Department of Finance (DoF) has committed an additional P12 billion for NFA’s palay procurement through a net lending facility, the balance will be sourced from the food agency’s operational savings and miscellaneous items.

This also means that beyond the budget subsidy and allocation from DoF, the NFA “will have to rely on the sale of imported rice,” says Banayo.

This year, the NFA is able to import rice at $480 per metric ton. But in 2010 purchases, the average price was $630 per metric ton. “At $480, given our release price of P25 per kilo, we are making a little spread, about P2 per kilo, as against an obvious loss [last year] when [we] bought at $630 and sold at P23.50 per kilo,” says Banayo.

But NFA’s earning will not be big because according to its administrator, the volume of imported rice reduced from 2,240,000 MT in 2010 to 200,000 MT in 2011.

Increasing NFA’s domestic palay procurement is part of the goal of attaining rice self-sufficiency for the country in 2013 because it will stimulate a rice production response from farmers. And it can be recalled that NFA’s mandate is to protect farm-gate prices by giving farmers a subsidized price support to keep private rice traders from buying palay at very low prices.

With the small allocation for the country’s food agency, agribusiness sectors are wary that rice self-sufficiency may not be possible in 2013. But Agriculture Secretary Proceso Alcala says that this will not affect NFA’s domestic palay procurement.

Alcala explained to Thw Manila Times that the NFA will not stop buying palay. But since NFA’s role is to buy palay from farmers at a high price and sell it at a low price to marginal consumers, resulting in financial loss on the part of the government, there is a need to limit such loss to P4 billion.

“Hindi po titigil ang NFA sa pagbili [ng palay](No, NFA will not stop buying palay),” Alcala adds. “This is part of the [National Rice] Program.”

Besides the small allocation for domestic palay procurement, sourcing payment for NFA’s debts and its interest charges remains a challenge.

When queried about reports that the NFA is programmed to pay P5 billion annually for its debt’s interest charges, Banayo said that in 2010 “it approached P8 billion.” This is because NFA’s debt stood at P176.79 billion in 2010. But “as of June 30, 2011, it was down to P153.4 billion,” according to Banayo.

The NFA has been indebted because of rice importation, domestic palay procurement, and operations. Finance Undersecretary Rosalina V. de Leon says most of the debts are short-term obligations, which will be due this year. For this reason, the DoF might refinance the short-term obligations to convert these to long-term obligations. Currently, P35 billion of NFA’s outstanding debt has been restructured into long-term obligations.

Asked how the NFA incurred a huge debt over the years, Banayo said that at the end of 2000, before the Estrada government fell, NFA incurred debts totaling P12 billion. By the end of 2001 under the Arroyo administration, NFA’s debt increased to P18 billion.

“NFA debt ballooned almost 10 times during the Arroyo administration as against the combined accumulated indebtedness incurred since NFA was established,” says Banayo. “Significantly, the indebtedness grew even more since 2008, from P55 billion in 2007 to 124 billion at the end of 2008.”

It can be recalled that in 2007 and 2008 there was a food price crisis in the international market and it led to rice price crisis in the country. Banayo says “the Cabinet of President Arroyo directed the increase of NFA farm support price from P10.50 to P17.”

“A reasonable price which would have given farmers a good return on investment and labor, should probably have been P14 or P14.50,” adds Banayo. “But market realities have caught up with the directed P17 support price by now.”

At this support prize, Banayo says the NFA has prevented market prices in the summer crop  and wet season crop from being lower than P16 and P14.50, respectively.

But the NFA might soon be stripped of its mandate to provide subsidized rice. Earlier, Budget Secretary Florencio B. Abad said President Benigno Aquino 3rd has agreed to reform the NFA to address its ballooning debt, and among the reforms is to transfer NFA’s function of providing subsidized rice to the Department of Social Welfare and Development. –Claire Mercado, Writer-Researcher, Manila Times