DEMAND AND SUPPLY - Boo Chanco (The Philippine Star) - February 14, 2018 - 12:00am

We are not being told the whole story on the rice situation. I get the feeling that some bureaucrats and their favorite rice traders are making a last ditch effort to stop the announced change in policy that removes the import monopoly of NFA.

Cabinet Secretary Leoncio Evasco, who heads the NFA Council, is about as honest a public servant as we can have. He has also worked closely with President Duterte and supposedly has the President’s full trust and confidence.

But Evasco is being undermined by the NFA administrator who supposedly has the backing of Bong Go, who in turn also has the full trust and confidence of the President. The NFA administrator wants to import rice or at least keep the agency’s monopoly to import rice.

A change in policy had, however, been announced by Evasco early in the term of Mr. Duterte. The policy would charge a tariff on rice imports, which will also be opened up to the private sector, dismantling the monopoly of NFA. The change in policy had been sought by economic policymakers for years, but to no avail.

The change was being sabotaged from the start. Almost as soon as the new policy was announced, the NFA bureaucrats told Mr. Duterte that an undersecretary wants to give import permits to the private sector to the detriment of local farmers.

The President was made to believe the undersecretary was lobbying on behalf of specific importers for personal gain. The President got so mad he fired the undersecretary without bothering to ask Evasco.

 But the undersecretary was working under the instruction of Secretary Evasco. As NFA Council chairman, Evasco sent two memos to NFA officials asking them to immediately submit to him for his signature the importation permits for private traders. Since the memos were ignored, Evasco’s undersecretary followed up.

 It is interesting to note that even before the NFA policy conflict erupted, Economic Planning Secretary Ernesto Pernia had noted that importation constraints imposed by government on rice is the likely explanation for rising rice prices.

 Many economists have been pointing out the folly of a policy that keeps rice prices high at the expense of urban consumers. High food costs make our labor cost uncompetitive and aggravate social unrest. 

 Economists insist there are better ways to assist our farmers without causing food prices to rise. But those who have profited greatly from the old system always manage to keep the old system going.

 Indeed, outstanding debts arising from government subsidy to NFA has exceeded our national defense budget some years ago. A government monopoly in rice importation benefits the rent seeking of syndicates protected by NFA officials for the longest time.

 Through the years, government import deals have not delivered the best price. NFA officials and their friends manage to inflate everything from the cost of freight, trucking and insurance. There is also the incentive to import more than we need because the more NFA imports, the more money they make even if we waste tax money as stockpiles get rotten.

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.

The old policy also violates international covenants such as that with the WTO. We have been requesting extensions after extensions to keep the quantitative import restrictions. Now we are ready to reform, it is being sabotaged.

Maybe it would be more difficult to keep the status quo if Congress passed a bill that would provide for a tariff on rice imports instead of the current restrictions. The money raised from the rice tariff is expected to be a big help in assisting farmers who may be affected by lower cost rice imports.

 The failure to pass the rice import tariff bill has created a vacuum. A change in policy had been announced but no way to implement it. In the meantime NFA stocks are dwindling by a combination of mismanagement and more natural calamities than usual.

The thing is… even the worst conspirators in the rice trade couldn’t have forced Evasco into a corner in normal times. Something happened in the market that they took advantage of. Here is one account I came across from a knowledgeable source:

“One, we had two unfortunate emergencies in 2017:  the Marawi City siege and the Mayon volcano eruption in Albay province, which were prolonged. The NFA had to move rice stocks to these areas, depleting its inventory at a time when the rice production of the affected areas are reduced.

“Two, a good part of rice output in Bicol is thrashed by rats. With Mayon’s eruption, the farmers were kept away from their farms within the exclusion zone for weeks enabling the rats to feast on the ready for harvest rice.  The government didn’t prepare for that. 

 “Third, logistics had to adjust because of TRAIN as the cost of transport increased.  All these are enough change in the market environment to get the proverbial rice cartel back at their work again.

 “But the managers forgot one important point. They didn’t prepare for these. And that’s the problem when it is only the government who decides how much rice we need to import to remedy temporary shocks.

 “Okay, the pattern is: government made a mistake and does not want to admit it. Blame the cartel. Behind every non-competitive actions by rice traders is a government mistake.”       

 And the agriculture secretary wants government to kick out the private sector from the rice trade entirely? Government can’t even properly handle the part of the rice trade it is now responsible for. We surely do not want government to make a Venezuela out of our beloved Philippines.

 Boo Chanco’s e-mail address is Follow him on Twitter @boochanco

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