Artificial spikes in prices in times of natural calamities

The heavy downpours brought by “Maring” that drenched the country’s rice and vegetable producing regions have brought to fore the basic problem of ordinary Filipinos – food security. We are again seeing the specter of so much crop losses and heavy damage to agricultural sector by this climate change phenomenon we call “habagat” (monsoon) that brings so much rain during tropical storms.

Thus, crop losses consequently push prices of rice and other basic commodities because of less supply in the market. Doubts are thus cast on the government’s insistent claims that we have sufficient buffer rice stock if based strictly on the law of supply and demand.
     It defeats logic then when the Department of Agriculture appears to be bent on controlling rice supply in the country.
The DA is now seeking an extension of the Quantitative Restriction (QR) on rice imports which lapsed in June last year. Does this have the imprimatur of President Benigno “Noy” Aquino III?

Without the QR, the government-imposed quota on rice importation would not hold water under existing provisions of the World Trade Organization (WTO). As a signatory to the Uruguay Round of the General Agreement on Tariff and Trade (GATT)-WTO, the Philippines is duty-bound to lift trade barriers on rice importation, such as quota restrictions.

And if a single typhoon can cause insecurity in the stock of rice in the country, why then is the government seeking an extension of the QR until 2017? Is it related to the bid to keep the 40 percent duty on rice entering the country under the Minimum Access Volume (MAV)?

There is nothing wrong in strengthening the local rice industry to become competitive under a free trade regime. But obligations under the GATT-WTO must also be respected and a bid for self-sufficiency must not be at the expense of enough stock to ensure stable prices in the market.

In fact, neighboring countries have already asked the Philippines to increase import allocations as well as lower tariff. Under the country’s previous QR on rice, imports outside of the 350,000 metric tons MAV are levied a higher tariff of 50 percent.

Rice imports have been drastically reduced from 2.4 million metric tons (MT) in 2010 to 500,000 MT last year.
The government should also remember that the Philippines is bound by the Association of Southeast Asian Nations Trade in Goods Agreement (or ATIGA) which stipulates that a reduced tariff of 35 percent should be imposed on all rice imports, regardless of volume.

It is interesting to note that last month, commercial price of milled rice in the Visayas increased allegedly due to insufficient supply.

Economist Roehlano Briones of the state think tank Philippine Institute for Development Studies also cautioned that self-sufficiency must not be at the expense of food security. “The goal of rice self-sufficiency is noble, but it cannot be equated to zero importation,” Briones pointed out.
“With the continuous demand for food staples, particularly rice, as a result of a steadily increasing population, the government should maintain a practical stand to achieving food security,” Briones stressed.

That practical stand does not – and must not be – by way of controlling the importation volume while ordinary Filipinos complain of insufficient supply and increasing prices.

More importantly, it should not be through restrictions that circumvent existing free trade provisions and put the country’s credibility on the line before the international community.

Such government restrictions only serve to entice unscrupulous rice traders to ply their nefarious smuggling activities with impunity because they can get away with it. Mis-declared as stone and wooden slabs, 520,000 bags of rice were seized by the Customs Bureau via its Cebu port last April. They were loaded in 1,069 container vans from Vietnam, with an estimated total value of around P950 million up to P1 billion worth.

That’s why it was described as the “mother of all smuggled rice.”

The Bureau of Customs in Cebu is set to auction supposedly yesterday the 174,720 bags of these smuggled rice amounting to P223.6 million. Earlier, the BOC in Cebu already conducted two public biddings for the total of 185,253 bags of seized rice on board 362 container vans. The bureau has earned P252.7 million from these auctions. A total of 371 container vans with an estimated 520 bags per container, or 192,920 bags that are now left will be also put on public auction by September this year.

It was only in September last year when 93,952 bags of imported rice also from Vietnam, worth around P154.5 million, were smuggled through the Customs port in Legazpi City in Albay.

So obviously, smuggling rice is being made very lucrative by the unintended consequence of well-meaning moves of the government to protect Filipino rice farmers.

Having said that, our country has international trade treaty obligations and commitments that it must comply with if it is to earn trust and confidence of its foreign trade partners. Insofar as the issue of QR on rice is concerned, the country has been given sufficient time to implement QR on rice importation to cushion its impact and to prepare the local industry to become competitive when it fully opens up its market to entry of foreign products.

Restricting the entry of imported agricultural products like rice to protect the local industry may not be bad at all as it protects the interest of Filipino traders. But when there is a supply lack, why restrict its importation that only engenders smuggling?

The bottom line is the government must ensure sustained and stable supply of rice to keep the prices of our staple food at most affordable price as possible, especially to the greater number of low income families. Its importation should not be restricted if local production can’t sustain the country’s requirements.

At the end of the day, to borrow the favorite phrase of P-Noy, this kind of policy is not healthy because it will trigger artificial spikes in prices, especially not timely during periods of natural calamities.