Rice tariffication eyed as solution to shortage, high prices, inefficient farmers

By: Karl R. Ocampo – @inquirerdotnet Philippine Daily Inquirer, Aug 24, 2018

Rice prices rose to all-time highs four months after the rice stocks of the National Food Authority (NFA) ran out.

Last year, consumers could buy regular-milled rice at an average of P37.89 a kilogram and well-milled rice at P41.93 a kilo.

In the first week of August, regular-milled and well-milled rice cost P42.26 and P45.71 per kg, respectively—the highest average for commercial rice recorded by the Philippine Statistics Authority. Other types of rice cost much more.

Prices of rice have continued to go up since then.

At the same time, however, farmers are enjoying the highest buying price for “palay” (unshelled rice), which breached the P22-a-kilo mark for the first time this month.

But farmer groups said the increase only offset higher prices of implements, seeds and fertilizers brought on by rising fuel costs.

The rise in rice prices—both at the farm-gate and retail levels—contributed significantly to the surge in inflation.

In July, inflation accelerated to a fresh five-year high of 5.7 percent nationwide and 6.5 percent in Metro Manila, eroding the purchasing power of consumers.

As Filipinos continue to wrestle with higher prices, the government’s economic managers are scrambling to find ways to quickly temper rising inflation.

One way of doing it, they say, is by passing the rice tariffication bill.

The solution offered by the bill is simple: Allow the market to be flooded with cheaper rice imports so long as these are slapped a tariff (a kind of tax).

In turn, the tariff collected would be used to subsidize rice farmers to ensure their competitiveness.

Political commodity

The price of rice, considered a political commodity, has long been regulated as a shortage could spur riots and instability.

Under the country’s agreement with the World Trade Organization (WTO) in 1995, for instance, the entry of imported rice is allowed in exchange for more flexible trade pacts provided there is a limit—805,000 metric tons (MT) yearly.

The agreement expired last year. To evade penalties from the WTO, President Duterte issued an executive order for the amendment of a law that would remove the import quota.

More than fulfilling the country’s commitment to the WTO, economists have also argued that this is the best way to tame inflation.

Based on a computation by the National Economic and Development Authority, the price reduction in rice could be as much as P4.31 per kg and may temper inflation by at least 1 percent.

The Bangko Sentral ng Pilipinas is expecting some P28 billion in fresh revenue annually with the passage of the rice tariffication bill.

35-percent tariff

Under the bill, rice imports from members of the Association of Southeast Asian Nations (Asean) would be charged a tariff of at least 35 percent, while imports from non-Asean countries would get a tariff of 180 percent.

Earlier this month, the House of Representatives passed the measure on third hearing. Its counterpart bill in the Senate is expected to be passed by the end of the year.

Despite the supposed benefits of tariffication, Sen. Cynthia Villar, chair of the committee on agriculture and food, said the bill should not be rushed.

“There is so much at stake here for the local farmers so we must study this carefully,” she said. “We cannot pass a bill that is ugly.”

The senator said that ugly meant the additional revenue of P28 billion from rice imports would not immediately benefit the rice sector, and that the shift may displace thousands of poor rice farmers.

Villar has thus proposed an upfront P10-billion subsidy for the rice sector.

“If our farmers are not competitive, even with the 35-percent tariff rate, they would still be on the losing end. That subsidy would be used to ensure their competitiveness in the future, because they cannot compete with rice from Vietnam,” she said.

Unlike in Vietnam and Thailand where farmers can produce a kilo of rice at P6, Filipino farmers incur a production cost of P12 a kilo.

Costlier in PH

In fact, rice in the Philippines has been more expensive than the average world price for decades.

Like Villar, Agriculture Secretary Emmanuel Piñol said the shift to open trade would not depress rice prices unless the government subsidized farmers so they could compete with cheaper imports.

“The removal of import quotas has nothing to do with rice prices,” Piñol said. “The only time it could affect prices would be if all the money collected from the tariff would really be channeled to the rice industry… And that may be in three to four years’ time. Maybe at the end of the term of the President.”

An industry group expressed fears that the policy would encourage smuggling as restrictions would be eased.

Just two months ago, some 100,000 sacks of contraband rice—valued at P250 million—were found at the country’s biggest port.

Bantay Bigas spokesperson Cathy Estavillo said the smugglers may have taken advantage of the entry of imported rice ordered by the NFA. The so-called NFA rice is the cheapest on the market and is bought mostly by the poor.

“Experience tells us that rice importation permits sold to private traders were used to create an opportunity for illegally imported rice to enter the country,” Estavillo said. “The liberalization of agriculture… pushes our country’s dependence on rice importation.”

NFA Administrator Jason Aquino is mum on the matter. But earlier this month, he called for importation of an additional 500,000 metric tons of rice this year, which would bring the agency’s imports for 2018 to a million tons.

Unperturbed

Despite objections from protectionists, the agriculture secretary is not bothered by any tariff regime.

“Even if we open the Philippine market to imported rice, there will be not much rice to talk about,” Piñol said.

“The world supply of rice is low to be freely traded or be accessed by countries [that] need it. We in the agriculture department are not worried,” he added.

Last year, the US Department of Agriculture noted a 20-percent decrease in the world supply of rice due to climate change.

Global rice production for this year could reach 470 million tons, according to the International Rice Research Institute. But of the total, only 39 million or less than 10 percent would be available on the market as countries hold on to their food supply.

China is expected to buy a large chunk of the available rice to feed its 1.3 billion citizens.

“The population of countries producing rice is increasing, the demand for food is increasing. Time will come when populations will balloon to a certain extent. You think they would still be willing to import rice? This may work on a short-term basis but not long-term,” Piñol said.

Whether relying on rice imports to cool down inflation and stabilize the supply and price of rice would be effective remains to be seen.

The challenge is to ensure that rice farmers can compete with imported rice, and give consumers the option to buy the staple at a more affordable price.