23 Feb 2021 – Rice tariffication: A litany of broken promises

by Raul Montemayor, 23 Feb 2020

(First of two parts)

The rice tariffication law (RTL) was born on Feb. 14, 2019 when President Rodrigo Duterte signed it, promising a host of benefits for consumers and gains for the economy.

Removing quantitative restrictions, or limits in volume, on rice imports had been touted to significantly reduce prices that consumers, particularly the poor, pay for rice.

Farmers would get help reducing production costs and increasing their yields to compete with cheaper imports and still earn money.

The government, particularly the National Food Authority (NFA), would be freed from its costly and graft-prone functions of importing, buying high from farmers, and then selling low and often at a loss to consumers.

Market players would then be able to freely and openly operate and compete with each other with minimal government interference. The liberalization and deregulation of the rice market would ultimately benefit the consuming public and the economy as a whole.

But has RTL lived up to these rosy promises and protections two years after it was implemented? Sadly, data show that it has not.

Consumers are no better off today than before RTL. Producers have incurred billions of pesos in losses. Only the intermediaries in between them—traders, wholesalers, retailers and importers—have actually benefitted from the law.

In turn, the government has been pressed to intervene and spend billions of pesos on problems that emerged from the law’s enforcement. This even as it has lost most of its powers to control profiteering and stabilize prices. The government has been remiss in doing its homework and complying with many of the law’s provisions.

Retail prices for consumers did not go down as promised (consumers ended up paying Php 6.16 billion more for rice).

Data from the Philippine Statistics Authority (PSA) show that the average retail price of rice in 2020 was only 36 centavos per kilo lower than it was in 2017. This translates to a saving per consumer of only 12 centavos per day. In 2019, or the first year of RTL, rice was actually more expensive than it was in 2017 by 73 centavos per kilo in retail.

Deception

The claim that RLT has tamed inflation is deceptive because inflation rates can vary significantly depending on the base period used. It is true that prices today are significantly lower than they were during the rice crisis in 2018. But 2018 was an abnormal period, and the prices then cannot be the basis for determining real price changes resulting from the RTL.

When comparing retail prices to those in 2017, which is the most recent “normal” year preceding RTL, consumers are actually no better off. Inflation has stabilized in the past few months not because prices have gone down. They have actually remained “high” contrary to RTL predictions.

Rice prices remained stuck at near-2017 levels despite the flood of rice imports following RTL enactment. This is a far cry from the predictions that RTL would bring down rice prices by as much as P7 per kilo and that imported rice would be able to match NFA’s selling price of P27 per kilo. In 2019, rice imports reached a total of 3.17 million tons, or nearly 2.5 times our supply deficit. In 2020, imports fell to 2.12 million tons, but this was still around 75 percent more than our actual importation needs. All of these imports were cheaper than local rice. Yet, retail prices hardly changed when compared to 2017 levels.

RTL was supposed to benefit poor consumers in particular, but it also failed to do so. Before the law took effect, NFA was importing mostly regular-milled rice (RMR) with 25 percent broken grain for sale to poor consumers.

The law then banned NFA from importing rice and selling stocks except during emergencies or as replenishment for old inventories. Private traders took over imports but opted to bring in premium rice grades instead for sale to relatively well-off consumers. Nearly three-fourths of total imports in 2019-20 were for rice with only 5 percent broken grain. When NFA’s subsidized P27 per kilo rice disappeared from local markets, poor consumers had no choice but to buy regular-milled commercial rice (RMR) at an average of P37 per kilo.

In monetary terms, consumers had to fork over an extra P8.59 billion in 2019— compared to 2017—for their rice needs. In 2020, retail prices were only marginally lower than they were in 2017, resulting in relatively small consumer savings of P2.43 billion or about P22 per person for the whole year. Overall, consumers lost out instead of gained anything during the first two years of RTL.

As predicted, palay prices plunged with the enactment of RTL and the ensuing flood of rice imports. In 2019, farmers received nearly P2 less per kilo than in 2017 for the palay they sold commercially. They did not fare much better in 2020, suffering a cumulative loss of P56 billion in the first two years of RTL. On the average, farmers’ incomes fell by around P6,000 per hectare per season.

The billions spent by the NFA and some local government units (LGUs) failed to prop up palay prices significantly. Farm gate prices during the main harvest seasons of 2019 and 2020 slumped to historically low levels. Prices did go up in April to June 2020, but this was largely due to transportation bottlenecks and increased demand for rice for relief operations following COVID-19 lockdowns.

RTL promised that the gains of consumers would far outweigh the losses of farmers. In reality, both consumers and farmers lost, with the farmers losing nine times more than consumers.

Stuck in place

Proponents of the RTL also said that the reduction in palay prices would be offset by higher yields, lower costs of production, and improved productivity resulting from the yearly P10 billion Rice Competitiveness Enhancement Fund (RCEF) and other interventions.

The latest PSA data show that there was practically no improvement in output in 2020 compared to 2017. The average yield per hectare in 2019-20 was only 3 percent better than what it was in 2016-18. At this rate, it will take up to 20 years before our farmers reach the six (6) metric ton per hectare level that will bring them at par with their Vietnamese and Thai counterparts.

Interestingly, rain-fed areas performed better in terms of productivity growth compared to irrigated areas where most of the RCEF funds were invested and where major improvements in competitiveness and yields were expected to come from.

RCEF has been beset by numerous problems arising from RTL provisions that placed the burden of implementing multi-billion-peso programs on small research agencies with limited capacity and manpower. The COVID pandemic has hampered further the timely distribution of seeds, machineries and other support to farmers.

Only about half of the P20 billion allocated for the first two years of RTL has been disbursed so far. Even then, it is doubtful if P10 billion a year in RCEF support can be a game-changer in the industry that generates a gross output value of only P320 billion a year.

RCEF has further compartmentalized the support programs of the DA, dividing the country into program and non-program areas and limiting interventions to a fixed menu of seeds, machineries, credit and extension. As a result, the impact of these piecemeal interventions are often negated by the lack of irrigation, marketing and other support services that are equally if not more important for farmers.

Until now, no clear impact monitoring and assessment system is in place to determine if the efforts to make farmers both cost-competitive and profitable are succeeding. In fact, even the Rice Road Map, which is supposed to chart the industry’s path towards competitiveness and food security and delineate critical targets and milestones, has not yet been completed.

The average area harvested in 2017-18 declined by percent in 2019-20. This could be an indication that some farmers are moving away from rice. Those who would be unable to adjust to cheaper imports were expecting help in shifting or diversifying to other crops and livelihoods. Until now, however, there is no clear program for this transition. Farmers are basically left on their own. Tariff collections from rice imports in excess of P10 billion per year were supposed to be tapped for crop diversification programs, but the funds have since been reallocated by the Senate for cash transfers for the poor.(Editor’s note: Raul Montemayor is national manager of Federation of Free Farmers)

(Part 2: Who benefits from a deluge of rice imports?)