A tale of two rice importations

Rice importation continues to be a prickly issue for the Philippine government given its significance to its 100 million-plus population. Thus, it comes as a relief that some major issues regarding procurement have been resolved recently.

Since the Marcos era, rice procurement has been monopolized by the National Food Authority (NFA), largely through government-to-government (G2G) deals, as a foil towards what was regarded then as the private sector’s abuse in rice and grains importation, distribution and marketing.

Over the last four and a half decades, Filipinos were able to enjoy a regime of controlled prices and adequate supply availability, which was a great boon to relieving tensions of succeeding administration’s governance latitude whether in the area of politics or economics.

Rice, being the staple food of majority of Filipinos, was indeed a commodity that wielded political and economic power. Actually, it still is. Incidents of price fluctuations or supply shortages is enough reason to incite the nation to topple or change its leadership.

Different views

Under the Duterte administration, some things had started to percolate with the NFA and the NFA Council, the former headed by Jason Aquino as administrator and the latter by Leoncio Evasco as chairman. A policy dispute over rice importation was shaping up.

The NFA administrator apparently was against allowing the private sector to import rice using the minimum access volume allowed for rice that is to be imported with a lower tariff by member countries under the provisions of the General Agreement on Tariffs and Trade of the World Trade Organization.

The NFA Council, on the other hand, wanted to allow private traders to use about 25 to 30 percent of the import quota for 25 percent brokens rice so that cheaper rice would be made available to Filipinos, especially those belonging to low-income families. And they had sufficient reason to do so.

It seems that during the past governments of Gloria Macapagal-Arroyo and Benigno S. Aquino, private traders and farmer cooperatives were allowed limited importation of five to 15 percent brokens rice to free the government from importing and financing commercial, but more expensive varieties.

Marked differences in cost

In the process, a striking revelation arose. Private sector-led importations, despite being of better quality, were coming into the country at prices lower than the G2G contracts entered into by the Philippine government and our neighboring rice producers like Thailand and Vietnam.

First, the inflation rate used was 1.82 percent and not 1.28 percent, which was the headline inflation rate for the Philippines during the same period.

NFA’s quotation for its reference price of 25 percent brokens was $356.80 for a total of 250,000 metric tons, which could be regarded as high considering that the private sector’s reference price for five percent brokens was $360 for 3,000 to 6,000 metric tons.

Freight charges went as high as $29.79 per metric ton, whereas the private sector was only paying $10 per metric ton. A surveyor’s fee of $0.76 per metric tons was also added, while the private sector would normally secure this for free.

The insurance premium for G2G importation was $4.84 per metric ton, more than double the $2 per metric ton paid by the private sector. The NFA reference price was also considered higher than industry practice.

The integrated cargo handling for NFA imported rice came up to $32.08 per metric tons, which is a far cry from the $20 per metric ton that private importers paid. Again, the reference price of NFA here is deemed higher than industry practice.

Lastly, G2G imports are slapped a 1.06 interest expense because it is procured on credit. Private importers do not pay any interest because their imports are secured on cash basis.

 All the above summed up boils down to a NFA reference price for bidding at $425 per metric ton for 25 percent brokens rice, which, during the most recent round, resulted in a winning bid of $424.85 per metric ton. The private sector got their more superior quality five percent brokens rice for less, at $392 per metric ton.

High priced rice for the less privileged

Obviously, the NFA prices come out much higher with all the added costs, which partly explains why NFA importations, when sold in the market, are just slightly lower in retail prices than commercially imported ones.

If there are any NFA rice that are priced significantly lower, these are likely those that had been rescued from bodegas that were exposed to the elements or had gone stale.

One reason for the abuse that we can glean from the NFA system is the fact that the procurement law is not applicable to the G2G importations, i.e., for integrated cargo handling and private freight forwarders. This is further aggravated by the “services” of private sector players in some components of the importation process, i.e., for surveyors and insurance.

One other reason why G2G is higher for the NFA is that the other country that is bidding acts as a consolidator, which could account for the additional costs that a private importer negotiating directly with private counterparts will normally not encounter.

Finally, as in the case of inflation rates, the NFA seems to be padding its numbers in a carefree fashion since it is not answerable to procurement audits.

Stronger procurement procedures needed

As things turned out, NFA administrator Aquino lost his case. The apparently more powerful NFA Council (which includes representatives of the National Food Authority, the Bangko Sentral ng Pilipinas, the Development Bank of the Philippines, the Land Bank of the Philippines, the Department of Finance, the Department of Trade and Industry, the National the Economic and Development Authority, and the farmer sector) gained the upper hand.

With the overall lack of transparency in the G2G agreements conducted by the NFA, there was bound to be some abuse. And now was the time to put a stop to this.

On the other hand, while there are stronger procurement procedures in place that can guard against abuse for private sector importation as government relinquishes its dominance on rice importation, care must be taken to ensure that a repeat of the chaos created by price manipulation and supply hoarding prevalent in the late ’60s and early ’70s must not happen again.

We should expect to see cheaper rice (25 percent brokens) in the coming months brought in by private importers that should translate to cheaper rice in the market. And let’s hope it stays that way.

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