The rice cartel

by Boo Chanco (The Philippine Star), 6 Nov 2019

It seems well meaning government officials well versed in economic theory are no match against the evil geniuses running the rice cartel. The Rice Tariffication Law was meant to blunt the cartel’s hold on the rice market… with real supply and demand determining prices. But it isn’t working that way.

Rice prices have not gone down as much as we expected, while farmgate price for palay (unhusked rice) is now at a level below a farmer’s production cost. Because rice is a political commodity, some government officials are in panic.

Newly installed Agriculture Secretary William Dar called for increasing the tariff on imported rice as a safeguard measure to protect local production. It is a protectionist approach which is as bad as the NFA import monopoly.

Economic managers rejected the Dar proposal because of potential inflationary effects. We have been enjoying low inflation the past few months because food cost, essentially rice, had been comparatively lower than before the RTL.

Another agri-business expert pointed out the folly of higher tariff on rice.

“So who is going to immensely benefit if we raise tariff on rice now by more than a hundred percent? Obviously, not the palay farmers, but the rice hoarders and cartels who will gain windfall profits from releasing their huge stocks as rice prices rise.

“These rice hoarders and cartels will no longer buy huge amount of palay from farmers given that their warehouses are filled with supply, thus will not raise palay prices. Sometimes, we need to use common sense instead of adhering to old and worn-out populist idea.”

According to a chart on the website of the Bureau of Plant Industry (BPI), the Philippine Statistics Authority has reported more than 2 million metric tons of rice had been imported between January and August this year. Applications to import some 2.7 million metric tons have been made during the period.

According to Sen. Cynthia Villar, chair of the Senate agriculture committee, we only need to import a million metric tons a year. The importation of two million metric tons of rice is being blamed for the continuous decline in the price of palay.

Checking the names of entities that imported rice reveal that many are supposed to be farmers’ cooperatives. Some of the biggest volumes were imported by these coops.

This is not surprising. Even in the past, traders have used coops to import rice under the NFA regime. If it was easy to smuggle rice during the NFA era, it shouldn’t be that more difficult to do that today, given corruption in customs and other law enforcement agencies.

All that rice coming in under the RTL and smuggling should make anyone think we are swimming in rice… that there is an oversupply in the market… at least a million metric tons more than needed. But the per kilo price of rice is pretty much close to what it was in the past.

This likely means most of the imported rice is being hoarded. The cartel is tightly controlling the release of supply in the market, which should explain why retail prices have not gone down significantly.

The government’s palay buying program through NFA also isn’t helping raise farmgate prices. As one observer puts it, it’s the traders who benefit from the higher prices NFA pays.

The traders buy from the farmers at very low prices and turn around and sell to NFA. Maybe if NFA goes around the farms like the traders and buy direct from farmers… but they are too lazy to do that.

The traders have a long experience on how to game the NFA and the government. Government bureaucrats aren’t as savvy or even interested in beating the traders or the rice cartel in their own game.

Why would the rice cartel buy all that imported rice just to hoard in their warehouses? Here is one view.

“It seems that traders did accumulate stocks and are now betting that government will blink, pour money into NFA, and they can then sell to NFA at above-market prices. That has been the ‘game’ for so many decades. I am hopeful that the economic team will hold firm, until the market settles, hopefully by early 2020.”

Now, Sen. Villar, one of the proponents and authors of the RTL wants to limit the country’s rice imports to just one million metric tons a year. She said that would help local farmers adjust to the new rice regime.

Limiting importations drastically changes the whole concept behind RTL. Government must, instead, directly confront the rice cartel and warn them to behave or the whole might of government will go after them.

Surely, the government must know where their warehouses are. Simultaneous raids to check the papers of the cartel’s rice stockpile should work wonders, assuming it is possible to control the usual susceptibility of officials to be bought.

The way it looks, there is little that government can do unless they break up the rice cartel once and for all. The Philippine Competition Commission should speed up their study of the rice cartel.

It is not that difficult to learn who are behind the cartel and establish their criminal liabilities. The DOJ did this once with the onion cartel that was manipulating onion prices. The work done by then Justice usec Geronimo “Indy” Sy should be a good reference.

Of course, it will take a lot of political will and more than just the Department of Agriculture to go after the rice cartel. The DOJ, BIR, DTI, PNP and AFP should constitute a task force to perform this mission.

Unless the rice cartel is strongly dealt with, everything officials say they are doing or want to do to help the rice farmers and the rice consumers will not work. The bad guys win again. It is as simple as that.