The knee-jerk price control on rice through Pres. Bongbong Marcos’ Executive Order (EO) No. 39 is a bad idea.
Which is not to say that some kind of intervention isn’t urgent. The uptick in inflation to 5.3% in August 2023 is most of all driven by rising food prices including, especially, of rice. The heavily-weighted food and non-alcoholic beverages component spiked to 8.1% inflation in August from 6.3% in July. The problem is that the EO doesn’t really seem well-thought out.
Price controls are a vital tool for managing the price of rice and other basic commodities especially when, as often happens in an overly market-oriented economy, there are unjustifiable increases by major market players. Consumers should have all protections possible against self-interested profit-seeking behavior.
Yet while price controls are a vital tool, one can’t really build anything with just one tool. A house isn’t built with just a hammer. Builders also need nails and saws, levels and tape measures, sanders and screwdrivers, and more. It’s the same with making rice cheaper for consumers.
Real rice support
Even if the price caps are properly enforced these are short-term measures at best and, even then, mainly just against hoarders and speculators. More needs to be done to make food more affordable. There should also be producer support prices to help protect rice farmers from the relentless downward pressure on their palay from traders abusing their local monopsony power (a market condition where there are many sellers and one buyer). The president may need to understand that this isn’t done by mere executive decree either – the National Food Authority (NFA) needs to be greatly improved and strengthened to have real influence over the palay-buying market.
But even these won’t be enough. The government has to provide broad-based support across the whole process from farmers to consumers. There has to be substantial public investment in irrigation, in research and extension services, and in making fertilizers, pesticides and other inputs more affordable. The increased harvests also have to be handled, stored and transported properly. Likewise, there has to be meaningful public investment in post-harvest facilities. Farm-to-market roads are also needed even if political pork too often distorts what should be rational use of resources.
And, still, this isn’t enough. Filipino rice farmers have to be given the space and opportunity to make their productivity gains. Trade protections against rice imports from Vietnam, Thailand, Myanmar, India and others will be needed until improvements in the efficiency of Filipino farmers have traction. Food security especially of the most essential staple of rice in any case should also stop being anchored on the risky assumption of unli imported rice always and for all time. Rice exporting countries will always prioritize their own consumers and stop exporting when they see the need to.
Price controls are useful and have a role to play but only as part of an array of tools. This EO 39, unfortunately, appears to merely be a populist gimmick to give the impression of action. Government statements that this is not a standalone initiative are unconvincing because little else is being done to substantially improve rice production and productivity.
Real rice neglect
The rice sector landscape is expansive. The 2.5-3 million rice farmers are its foundation. Their produce goes through some 15,000 warehouses, 8,000 mills, 4,000 wholesalers and 54,000 retailers (aside from some 9,500 wholesalers-retailers) to reach the almost 113 million rice-consuming population. There are also some 300 rice importers.
The government has unfortunately largely abandoned the sector to market forces. To begin with, rice farmers are given scant support to produce rice cheaply and with decent remuneration – and, if anything, are even made to compete with cheap rice from abroad. Rice farmers are moreover forced to accept whatever traders with monopsony (buying) power offer them. Consumers are also at the receiving end of neglect. They pay for rice that shouldn’t be so expensive to produce and that’s made even more pricey by a rice cartel with, in effect, monopoly (selling) power.
Government intervention has to be substantial to develop the rice sector in ways favorable both to rice farmers and the consuming public. Indeed, among Pres. Marcos Jr’s justifications for his self-appointment as agriculture secretary is being able to give the position presidential momentum and decisiveness including ensuring ample resources for all the country’s agricultural needs. These remain unseen.
The increased prioritization of agriculture in the national budget was marginal to begin with and only increased slightly from 2.9% of the budget in 2022 to 3.5% in 2023 – still far below the historical average of 5.2% of the budget in the last 40 years.
But even that effort is short-lived and agriculture’s share starts to fall again to only 3.4% in the proposed 2024 budget. Specifically on rice sector development, the allocations for the National Rice Program (NRP) only go up an incremental 1.9% or Php573 million to Php30.9 billion, which does not even keep up with inflation. Most irrigated land in the country is used for rice farming. Yet despite over a million hectares of irrigable land still not irrigated – or about a third of total estimated irrigable area – only a tiny 2.2% or Php31.2 billion of the massive Php1.4 trillion infrastructure budget for next year goes to the National Irrigation Administration (NIA).
The administration is in a quandary about what to do because its free market dogma prevents it from giving rice all the public support and trade protection it needs to be affordable for all. Unable to take the long view of making rice cultivation more viable and remunerative, it chronically resorts to short-term damage control like the price cap and importation.
Domestic rice production hasn’t substantially improved since rice liberalization four years ago and, if anything, our rice import dependence is getting worse. We may be forced to import more if supplies remain low in the coming harvest season but this should be a temporary stop-gap measure at best. Rice self-sufficiency should be a goal – exactly as it is for all the countries that we’re importing our rice from. They all achieved this with support from their governments.
Real rice problem
Expensive rice – and expensive food in general – is a real problem that’s only getting worse as household incomes falter among the poor and middle-class. The president’s EO 39 is a bit of a desperate move though and doesn’t indicate a real understanding of the problem. It seems most of all driven by a need to explain away why Php20 per kilogram rice really won’t happen.
Shifting the blame of rising rice prices mainly to hoarders and speculators is also somewhat diversionary considering the much deeper problems of scarce support to rice producers made worse by reckless liberalization. To be sure, evil traders are a more visual and convenient target than ‘respectable’ economists implementing free market policies in agriculture.
But the standalone rice price caps will not just be ultimately ineffective but might even backfire. The price controls may momentarily lower retail prices and benefit consumers fortunate enough to be reached. Compliant large retailers operating at scale will still have a comfortable margin but many small retailers who bought their rice dear may become troubled – at the very least making painful losses and, at worst if the price cap persists, maybe even shutting down. Traders may also abuse their monopsony buying power and drive palay farmgate prices down to protect their margins.
A protracted price cap without minimum farmgate prices and support for small traders may just end up disrupting rice supplies which will only drive up the underlying price of rice even more. The price ceiling also doesn’t make the underlying price of rice any cheaper. Substantial public investments in rice and agriculture astride rational trade protection are the only way to achieve this.
So, the president and concurrent agricultural secretary’s rice price cap may be like trying to build a house with just a hammer. With no other tool and unable to do anything else, one might just end up smashing everything. ###