The price of rice
DEMAND AND SUPPLY - Boo Chanco (The Philippine Star) - August 21, 2019 - 12:00am

Just before he relinquished his office, former agriculture secretary Emmanuel Piñol ridiculed the country’s economic team, urging them to look beyond the graphs and get out of their airconditioned offices to see things on the ground.

“Also, they should not be obstinate and show humility by admitting that not all economic theories work in the real world,” Piñol said.

Indeed, despite the rice imports and the lower palay prices, prices consumers pay for rice have not gone down as much.

The former agri chief thinks the economic team missed the reality that in the rice trading business, there are hoarders, market manipulators, and the rice cartel that agrees to set buying and selling prices. Free market forces are not operating.

Additionally, Piñol observed that “traders found importing rice is more profitable, convenient and less risky, and many have opted not to buy locally produced paddy rice, pushing down the price of Filipino farmers’ produce from a high of P20 per kilogram last year, to as low as P12 to P14 today… economic theories got KO’d by the realities of the rice industry…”

It was reported that about 200,000 farmers have stopped planting rice and about 4,000 rice mills have stopped operating with the deluge of imported rice in the market.  They are looking at an estimated loss of P114 billion for Filipino farmers this year.

“This is a classic case of disconnect from legislation to implementation. It is not always the clockwork operational efficiency we project. Remember this is government bureaucracy.

“Cash transfer to farmers is urgent for this season. The P10 billion fund will take time to benefit farmers because of delays in the organization of farmers and LGUs, say for mechanization,” Dr. Rolly Dy, an agribusiness specialist at UAP replied to my query.

Another economist, a congresswoman, urged the Philippine Competition Commission (PCC) to investigate rice millers and traders for possibly violating the Competition Act by abusing farmers as they take advantage of their dominant market position.

Assistant Minority Leader Stella Luz Quimbo—a professor and department chairman at the UP School of Economics and a member of the PCC prior to being elected to Congress, noted that “while the price of rice we buy in the public market dropped by 2.9 percent, the price of palay sold by farmers to rice traders and middlemen plunged significantly more, by 17.48 percent.

“In short, the farmers are shouldering the substantial portion of the reduction in rice prices… That is just not fair,” she added.

So it seems the challenge for our policy makers is how to raise palay prices without increasing prices paid by consumers. But let us not go back to the past because what NFA and DA had been doing are inefficient, prone to corruption and costly.

“The gap between what the consumer pays and how much the farmer gets is a very long road,” another senior economist commented. “The marketing and distribution intermediaries still have a major role in determining the total supply available in the market.”

So what do we do?

First things first. We need to take care of the farmers right away. It may take time for government to set up the mechanism that will bring the assistance to all the rice farmers as envisioned in the Rice Tariffication Law.

In the meantime, Agriculture Secretary William Dar will roll out a P1.5-billion loan program for rice farmers. Dar said under the program, the rice farmers tilling one hectare of land and below may avail of a P15,000-loan via the Expanded Survival and Recovery Assistance Program for Rice Farmers (SURE Aid).

Under the SURE Aid, which will start on Sept. 1, 2019, rice farmers who are farming one-hectare land and below, may avail of a one-time, zero-interest loan amounting to P15,000 payable up to eight years.

The National Food Authority (NFA) will also buy the produce of rice farmers who avail of the loan assistance under the program. This will theoretically reduce ability of traders to abuse farmers with low buying prices.

The problem with the NFA is that the people there want the Rice Tariffication Law to fail. They will come up with excuses why they are unable to buy palay at the support price of at least P17/kilo.

A crisis will scare even the President to let NFA exclusively import again. Short term measures are urgent as harvest season starts late next month. 

In the medium to long term, the agriculture department will work to get the Rice Competitiveness Enhancement Fund or RCEF going. The program seeks to help farmers get hold of hybrid rice seeds that will improve farm yields. It will also help farmers mechanize.

Then there are things government should have done a long time ago… like post harvest facilities including warehousing so that farmers are not held hostage by traders.

Improving the productivity of farmers through better seeds and land consolidation will help them increase their income.

Renucci Rice, which was visited by President Duterte in Leyte, is already doing that: providing the hybrid seeds and advancing the fertilizer, in exchange for the produce.  According to them, farmers’ incomes have doubled. 

According to Dr. Rolly Dy, there are successful examples of consolidation by cooperatives under a single management in Ilocos. CARP should also be amended to allow  successful farmers to expand. In any case, the key is productivity.

The so called stickiness of rice prices in immediate post-tariffication period will require other measures to assure a real competitive market to bring down prices.

As one other economist warned, the transition from monopoly to tariffication is a major shock on the system. Time is needed to reap the promised benefits. The President should not panic by suggesting a temporary halt of rice importation.

Then again, given that the agriculture sector is prone to the formation of cartels (remember the garlic cartel?), Rep. Quimbo is right to alert the PCC to look into this matter.

It wouldn’t be surprising if the rice trading cartel are conspiring to tarnish the Rice Tariffication Law by victimizing the farmers with low palay prices. We will likely need to exercise tough state police powers to make the traditional rice trading cartel behave.

Boo Chanco’s e-mail address is bchanco@gmail.com. Follow him on Twitter @boochanco

EMMANUEL PIñOL RICE PRICES
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