Analysis: A disconnect in Duterte’s rice policy?

MANILA, Philippines – There seems to be a disconnect in the incoming Duterte government’s rice policy.

Plans to monopolize rice and make the Philippines self-sufficient in two years come at a time preparations are ongoing for the removal of a 12-year-old rice importation cap next year which is meant to protect local farmers.

At the center is the National Food Authority (NFA), the debt-ridden agency tasked to ensure enough supply and stable prices of basic staples such as rice and corn.

At the end of last year, NFA liabilities were pegged at around P150 billion.

The agency is tasked to come up with estimates of the country’s rice needs. From this, import plans are drawn. Since 2004, rice imports have been subject to quantitative restrictions (QR) from the World Trade Organization, imposing quotas to shield local farmers against competition with low-value crops from abroad.

The program has been extended twice and is now set to expire by 2017.

“Actually, NFA is preparing for a no-QR environment. The period given us by WTO to move to a no-QR environment is over,” Finance Undersecretary and chief economist Gil Beltran said.

“NFA is going to focus on buffer stock management,” he said in an e-mail.

In the current set-up, the plan looks desirable. Since 2010, the government has granted the private sector authority to import rice under the QR’s minimum access volume. It bid out a certain amount of rice orders to private players who can import them at a low tariff.

Once QR is lifted, it will enable the country to ship in more rice, but with Duterte’s plan to return to NFA the sole mandate to do so, observers have raised concern it would cost more taxpayers’ money and add to the country’s debt.

Rice self-sufficiency

Currently, an average of P12.78 billion in subsidies is shelled out every year to support NFA operations, Department of Finance data showed. This could easily increase as rice imports rise.

“It is very hard to program our rice needs because you also have to consider a growing population, natural calamities,” said Roehlano Briones, research fellow at the Philippine Institute for Development Studies.

“This promise of rice self-sufficiency will be heard every now and then. I always see that happening. But every now and then, that will be missed,” he added.

No less than the Aquino administration fell victim to its own rice independence thrust. Initially, shipments dropped from more than two million metric tons in 2009 to just around 500,000 MT in 2012.

By 2013, initial plans of around 200,000 MT were set only as buffer stock. By 2014, this shot back up to two million MT and 1.2 million last year, NFA data showed.

“Rice self-sufficiency is a costly, impractical policy. (They) launched it, despite objections..., with a gigantic budget which yielded little,” said Calixto Chikiamco, president of the Foundation for Economic Freedom (FEF).

“The humongous budget was used as a justification for corruption in the awarding of contracts of post-harvest facilities, irrigation projects,” he added.

Inevitably then, academic group FEF said it would be more cost-efficient to let the private sector participate in the rice industry with NFA as the regulator.

This may also come at the expense of local farmers. Romeo Bernardo, economist at think tank GlobalSourcePartners, said NFA could still protect domestic harvests by imposing tariff of as much as 30 percent.

NFA has a “buy-high, sell-low” program which basically means it purchases palay (unhusked rice) from local farmers above market rates, but sell them to consumers below prevailing prices.

This, however has also been partly blamed for NFA losses and debts.

“Most of the price differences paid for by the consumers...came from forcing marginally productive rice lands into production or worse, into hands of corrupt officials and traders,” Bernardo explained.

‘Welcome development’

But Briones disagreed. He said while rice self-sufficiency is unattainable, giving NFA back its mandate, “which is practically being practiced now,” should not result into more obligations.

“Importation will always be cheaper than domestic food production...The act of importation itself, government can make huge bulk orders according to our needs,” he said.

“You don’t need a private trader to do this. Because if it’s them who will decide, it will depend on their business decisions which we cannot control,” Briones added.

Beltran, for his part, said the current program of buying high and selling low are bound to change as farmers’ productivity improves with better facilities and irrigation as well as high-yielding crops.

To this end, incoming Agriculture Secretary Manny Pinol’s plan to put the NFA with other agriculture agencies such as the National Irrigation Administration under the same roof is a “welcome development,” Agriculture Undersecretary Emerson Palad said.

For now, however, Beltran said rice imports should be “top priority” in the budget.

“Fiscal stability is a necessary condition for macroeconomic strength and should be preserved at all times. Still, the fiscal situation should adjust to resource constraints and changing priorities,” he said. – With Louise Maureen Simon