The price of rice

I grew up in an area of Paco, Manila that’s a few blocks away from what was then the office of the forerunner of the NFA. I think it was called the National Grains Authority or NGA, and before that, Rice and Corn Administration or RCA.

This is where I saw long lines of people trying to buy rice during a rice supply crisis. Every president knows rice is a political commodity that influences election outcomes.

The problem is rather complicated because of competing interests. On the one hand are the farmers, and on the other hand are the consumers. Then there are the politically influential traders.

Because the government has never really been able to provide adequate support services to our farmers, wealthy traders have stepped in. They provide everything from seeds to fertilizers and enough credit to see a farmer through a planting season to harvesting.

Because of the political nature of rice, our staple food, every administration proudly declares a rice self sufficiency goal upon assumption of office. This isn’t easy to achieve because of our geography.

We don’t have the large river systems of mainland Southeast Asia to feed the rice fields. We have to put up expensive irrigation systems to have more than one crop season. Our yields per hectare pale compared to Thailand’s and Vietnam’s.

In other words, we should really be planting other crops that will bring our farmers better incomes. But our farmers have been planting rice for centuries and few are daring enough to try new crops that do not require a lot of water.

Our bureaucrats at the Department of Agriculture and the National Food Authority also have big personal incentives to maintain our outdated and inappropriate rice policies. Economists have been saying that aiming for self sufficiency in rice is a no-win gambit.

It is a simple application of the principle of comparative advantage… doing something that you can do better and cheaper than anyone else. Obviously, we have no comparative advantage in growing rice to the point of “self sufficiency.”

We have some areas where rice can be competitively grown (specially with new hybrids). These are fertile areas where the irrigation system is working well to enable growing several crops a year.

But for areas that are essentially rain-fed, soil analysis should be done to determine what crops can be more profitably grown. After all, we don’t live on rice alone. We need vegetables and fruits for domestic consumption and for export.

More should also be done to help farmers grow potatoes, onions and other farm produce used by food processors. Jollibee, San Miguel and Nestle are good examples of companies with programs to support farmers who grow farm products they need.

I know for sure that President Duterte had good intentions when he declared last week that he is banning rice imports to support the farm gate price of rice. That was why he fired one undersecretary said to have shown special interest in advancing importation by private entities.

Two issues are involved: import rice now for buffer stock or later. If we import now, the National Food Authority Council or NFAC that should control NFA wants to let the private sector do the importation.

But the NFA management wants a government to government transaction. The secretary of agriculture, however, wants to ban imports for now because he claims we have good harvests.

The undersecretary explained she had been merely implementing a decision already reached by the NFA to let private sector do the importation. This will save government from borrowing P24 billion to cover the one million metric tons of rice NFA’s Aquino wants to import. NFA already has a “legacy debt” of P211 billion from past such imports.

If this is so, the fired undersecretary was doing the right thing. We ought to get the government out of the rice importation business.

Government to government importation deals do not guarantee we get the best price. It is exempted from the Procurement Law.

One loophole is the choice of “logistics provider” or the company that will transport the rice from boats to trucks. This is where big money is made even as it raises the costs of logistics.

Opening up the importation of rice to everyone should make the system more honest because there is incentive to import at the least cost and at the right time. Because their money is at stake, private importers will import only as much as the market can take. Anything more will mean losses on their part.

Apparently the undersecretary was working under the instruction of Cabinet Secretary Leoncio Evasco. As reported by The Star last week, documents it obtained show Evasco, as NFA council chairman, sent two memos to NFA officials asking them to immediately submit to him for his signature importation permits for private traders.

The memos, dated four days apart, were marked “Extremely Urgent.” Evasco furnished NFA administrator Jason Aquino copies of his two memos, which were printed on the letterhead of the Office of the President. The memos were ignored.

However, the NFA officials got to talk to the President first and convinced him Evasco’s undersecretary was up to no good. Apparently, the President didn’t bother to ask Evasco.

It is interesting to note that even before the NFA policy conflict erupted, Economic Planning Secretary Ernesto Pernia had noted that inflation in rice and meat has accelerated. Sec. Pernia thinks importation constraints imposed by the government as the likely explanation.

Many economists have been pointing out the folly of protecting our domestic markets at the expense of the consuming public. Economists insist there are better ways to assist our farmers without causing food prices to rise.

High food costs make our labor cost uncompetitive and aggravate social unrest. But those who have profited greatly from the old system always manage to get their way.

The total ban on imports preferred by the President and his agriculture secretary may prove risky. I am not sure how good our agricultural statistics are, but if it is just the usual “puede na,” we have problems.

They may grossly overestimate production and end up with a politically dangerous shortage. By the time we realize we need to import, it may be too late or too costly. It happened during P-Noy’s watch when agriculture officials gave a rosy production report to look good but turned out not true.

We don’t even need a shortage that requires people to line up for their daily quota, as I witnessed during my growing up years, to generate unrest. A significant price rise in the public markets could potentially destabilize government.

As for the assumption of the President that a ban on rice imports means more money for our farmers, that may also not happen. Rice traders have always managed to corner most of the profits that can be made from the growing and selling of rice. Farmers get barely enough to support their earthly existence.

Having experienced the extremes of El Niño and La Niña over the past few years, our officials ought to err on the side of safety. It is not enough for the President to say he saw verdant rice fields in his helicopter ride over Mindoro to conclude we will have enough stocks to avert a supply and price crisis.

For the sake of our people, we can only hope and pray the President and his agriculture secretary know what they are doing. They will pay dearly in terms of political capital if they are wrong, but our people would have already suffered on account of their mistake.

Boo Chanco’s e-mail address is [email protected]. Follow him on Twitter @boochanco