Our agriculture is failing fast.
We are importing everything, it seems: rice, sugar, garlic, onions, carrots and even salt. Yet no one wants to look at the structural roots of this failure. There are more political points to gain from chasing after smugglers and hoarders and all the other symptoms of shortage rather than at the cause of shortage.
The cause of shortage is the fact that our agriculture has atrophied. It is frozen at subsistence level by obsolete and mystical views about land and productivity. We have so protected our agricultural sector that we kept it in suspended animation, trapped in subsistence methods. The whole sector is insulated from the single economic factor that made agriculture elsewhere more productive than us: capital.
Earlier this week, the Foundation for Economic Freedom (FEF) issued a statement calling on Congress to “build on its momentum to attract more capital into the country by removing foreign investment restrictions in the critical rice and corn sectors.”
Specifically, the FEF is calling for the repeal of Republic Act 3018 or the Rice and Corn Nationalization Law of 1960. This law limits to Filipinos the culture, milling, warehousing, transporting, exportation, importation as well as handling of distribution in the rice and corn industries.
We often hear people complain that we trained our neighboring economies in rice cultivation but today we import from them. This is not a cultural flaw. Rice cultivation in our neighboring economies prospered in a different environment. Ours stagnated because of economic nationalism.
The Rice and Corn Nationalization Law was framed during a time when we were in the grip of economic nationalism. This was enshrined in president Carlos P. Garcia’s “Filipino First” policy, an inward-looking orthodoxy where, instead of keeping up with progress in the global market, we suppressed trade and competition through such things as agricultural protectionism and import substitution.
The Rice and Corn Nationalization Law was only marginally relaxed by the Rice and Corn Law of 1973, enacted through a presidential decree issued by president Ferdinand Marcos Sr. This law allowed foreign-owned companies to engage in the rice and corn trade. The decree, however, had a mandatory divestment period after which the company needed to be 60 percent Filipino owned.
Both the 1960 and the 1973 laws restricted investments in downstream investments in food processing, investments in mechanization and in new seed varieties and development of related businesses. As a result, food logistics never developed. Farming methods remained antiquated. Our farmers were insulated from the market.
These restrictions should be removed if we want to see progress in our agriculture. Allow capital to flow into our farms and enable investments in agricultural logistics.
In the name of nationalism, we impoverished our farmers.
Consumers first
Next month, the temporary measures imposed against imported cement will lapse. These measures were imposed in 2019 by the DTI through Administrative Order 19-13. In December 2021, in the face of sharply rising imports of Vietnamese cement, the DTI imposed an additional anti-dumping duty specifically on products imported from Vietnam.
The safeguard measures were imposed because rising imports were portrayed as “dumping” and threatened the viability of our local cement industry. The Cement Manufacturers Association of the Philippines (CMAP) lobbied hard for these safeguard measures.
Pro-consumer groups, however, argue for a free cement market within the framework of the ASEAN Free Trade Area (AFTA). A free market for cement will ensure lower prices for the product and greater incentive for our local manufacturers to meet efficiency standards. The National Government, currently engaged in an ambitious infra modernization program, will be the biggest beneficiary of cheaper cement.
The DTI’s price monitoring reports in 2019 showed retail prices for cement in the domestic market rose by between P15 and P40 per 40-kilogram bag. During this time, the provisional safeguard duty of P8.40 per bag was imposed. The duty certainly added to the domestic price of the product.
The provisional anti-dumping duties were imposed from December 2021 to April 2022 and added between P2 and P25 to the final cost of each bag of cement. The duties did not arrest the inflows of imported cement. What both the safeguard and anti-dumping duties achieved was to penalize the Filipino consumer with higher prices.
Meanwhile, even as imports rose, our manufacturers increased their production. This reflects the strong domestic demand for cement even as we endured contraction due to the pandemic.
In 2021, Republic Cement grew its production by 171 percent while Holcim grew by 24 percent. In 2021, Republic Cement’s net income rose to P1.6 billion while Holcim’s rose to P2.56 billion. Both companies certainly benefitted from the safeguard duties imposed on competing imports. Only Cemex suffered contraction in output and a decline in net income due mainly to foreign exchange issues.
Pro-consumer groups are arguing that domestic cement manufacturers should be able to stand on their own without the protectionist barriers erected on their behalf against competing imports. There is no way Filipino cement manufacturing might be described as “infant” industries. Putting in “safeguard” duties will only add to the price inflation of a necessary commodity.
As the temporary safeguard measures are due to lapse next month, we might expect the debate over extending them to intensify. Local cement manufacturers constitute a strong lobby. The pro-consumer groups want their voices to be heard too.
There is no halfway decision to be made here. Either the protective duties are maintained or they are not.