Montemayor on rice cartels

Allow me to share some comments and insights on your recent article on rice cartels.

First, let’s take a look at the rice value chain. From the farmer, the palay (unhushed rice) goes to a trader who sells to a miller, who then processes and sells milled rice to a rice wholesaler, who then sells to the retailer.  There could be added layers in between, but this is the basic structure.

If, indeed, there is a rice cartel, it would be at the wholesaler level because this is where large volumes of rice are handled and prices could be effectively manipulated.  Almost all millers, and now importers, have to go through these wholesalers because they do not have the distribution network and capacity to deal with individual retailers and market outlets.  (But we also have to look at the retailers because there are reports that they have also jacked up their mark-ups.)

Is there hoarding and price manipulation going on?  It would be easier to say yes, if rice supply was tight.  But 3 million tons have already been imported since January this year, or about double our import requirements for the whole of 2019.  It does not make sense to hoard when there is so much supply.  In turn, the market can absorb only so much, because consumers can eat only so much rice every day.  So a lot of the excess supply has to be stored for the meantime.

Aside from this, the main harvest season is going on and will add another 7 million tons of rice up to the end of the year.  Where will this go if the market is already flooded with imported rice?

The millers in the provinces now have to sell their rice at prices competitive to imports at the wholesale level. This explains why palay prices have dropped to around P15 to P16 per kilo.  (Prices for newly harvested palay are lower by P3 to P5 per kilo because they have to be dried first before they can be milled into rice.)  If milling, transport and other costs are taken into account, this translates to a selling price of about P30-32 per kilo of rice, which is reported to be the wholesale price range of imported rice at the moment.

It also does not make sense to suspect millers and traders of hoarding.  They do have a lot of palay in their bodegas right now, but it is because they cannot unload their stocks at a profit to wholesalers due to the glut of imported rice.  In fact, many traders and millers have reportedly suspended or downscaled their operations, which has led to a further decline in palay buying prices.

Nor does it make sense for traders and millers to buy palay with the intention of selling the palay to NFA (which is illegal because NFA should buy only from farmers).  Otherwise, they would not have invested in large warehouses, rice mills and trucks.  It is the glut of imported rice and their difficulty in disposing of their stocks that is pushing them to try to illegally sell palay bought at P15 per kilo to the NFA atP19 per kilo.  Equally far-fetched is the theory of one of your sources that the so-called rice cartels deiberatedly imported so much so that the government will be forced to give more money to NFA and local palay traders can then sell their palay to the NFA.

In response, the government is now asking the NFA and the LGUs to buy palay from farmers at higher-than-market prices.  This will help, but will be unsustainable.  These agencies can absorb only 10 percent of farmers’ produce not only because of funding limitations, but also due to the lack of warehouses, drying facilities, manpower and logistics.  Because they are buying higher than market, somebody will end up absorbing losses of up to P6 per kilo of rice – either the NFA or the LGUs, or the government agencies like DSWD to whom they will sell their rice, or the 4Ps beneficiaries and government workers who will have to accept the higher-priced rice and will, therefore, lose the choice to buy the rice they prefer in the open market.

Giving long-term interest free loans to affected farmers also seems illogical.  Why lend money to farmers to finance a losing proposition?  How will they pay their loans if the price of their palay keeps going down.  Similarly, giving a “Christmas gift” of P5,000 per farmer is a clear consuelo de bobo, given that farmers have probably lost more than P20,000 per hectare already from the drop in palay prices. And because the funds are sufficient only for only one-fourth of rice farmers, the majority of farmers will end up feeling unjustly abandoned.

If we want to clear the glut in the market, we need to stop imports for a while.  There is no other way around this, unless we wait for farmers to lose more money and stop farming altogether (which is probably what NEDA director Pernia wants to happen when he said we should wait one or two years more before considering more drastic measures).

Reimposing quantitative restrictions, even temporarily, as President Duterte suggested in one forum, is out of the question.  The Rice Liberalization Law does not allow this and we could even be subjected to disputes in the WTO.

WTO rules and our own Safeguard Measures Act allow us to temporarily impose additional tariffs under certain conditions.  If the additional tariffs are high enough, they could stop the entry of more imports, and it would be totally legal. Unfortunately, the DA shelved the proposal and the economic managers thumbed it down allegedly because it would raise inflation rates.

Your so-called agribusiness expert says imposing the additional tariffs will not benefit farmers.  True, because by now, it is too late.  It should and could have been done much earlier and before farmers started to harvest.  At this point in time, the objective of the safeguard duties will be to temporarily stop more imports so as to ease the supply glut.  Otherwise, palay prices will continue to drop in future harvest seasons.  Once the supply situation normalizes, there is nothing to stop the government from withdrawing the safeguard duties.

Others say raising the tariffs would be a policy reversal.  This allegation does not make sense.  The rules on safeguard measures were deliberately included in the WTO rules precisely to help countries cope with market problems after liberalizing their sensitive sectors.  We have our own Safeguard Measures Act which was patterned after the WTO rules. Many countries have availed of this trade remedy.  The EU recently imposed a P10 per kilo safeguard duty on rice from Cambodia and Myanmar.  Both Vietnam and Thailand have used this remedy repeatedly.  The Philippines imposed safeguard measures in response to the surge in imports of cement, float glass and tiles.  When our farmers are already drowning, is it not the proper policy to rescue them and provide them with a safeguard?  I would think that leaving them to die is the policy reversal.

Will rice prices go up when we impose the safeguard duties and imports stop coming in as a result? They should not, because the market is already awash with cheap imported rice costing only P30 to 32 per kilo wholesale and palay bought by traders at equally low prices.  Government just has to find a way to bring the retail price down to a more reasonable level.  If it cannot do that, it will be unfair to ask the farmers to continue sacrificing just so inflation can be held in check.

Raul Montemayor

National manager, Federation of Free Farmers