Three things beyond rice tariffication

February 19, 2019

by IBON Foundation

President Duterte has signed the Rice Tariffication Bill into law, which promises to reform Philippine agriculture. But until the government genuinely completes land reform and gives sufficient and substantial support to agriculture, the country’s staple and Filipino farmers remain at risk.

The law removes quantitative restrictions or limits to rice importation. Any amount of rice from Association of Southeast Asian Nations (ASEAN) countries can now be imported at 35% tariff and for rice from non-ASEAN members at 50% tariff. This complies with the World Trade Organization (WTO) Agreement on Agriculture (AOA). Under the new law, a Rice Competitiveness Enhancement Fund (RCEF) will be sourced from tariff revenues and allocates Php10 billion annually for six years to support Filipino rice farmers.

Fifty percent of the RCEF or Php5 billion will be used as grant in aid to farmers associations, registered rice cooperatives and local government units (LGUs). This will be distributed in kind as rice farm equipment like hullers, tractors, seeders, millers, and dryers for improving farm mechanization. The rest of the fund goes to inbred rice seeds for rice farmers (30%), low-interest loans to rice farmers and cooperatives (10%), and extension services to farm schools nationwide (10%).

What rice tariffication will not do

Contrary to all the hype that it will benefit the agriculture sector and Filipino farmers, rice tariffication will not do the following:

1 . Improve farmers’ livelihood. With little support from government, weak domestic rice production and Filipino farmers already submerged in debt and poverty, the chance for farmers’ livelihoods to improve significantly under rice tariffication is slim. National farmers’ group Kilusang Magbubukid ng Pilipinas (KMP) estimates that some 500,000 of 2.4 million rice farmers will be adversely affected should the Philippines import an annual average of two million metric tons (MT) of palay.

Rice was the major crop that was first subjected to share tenancy and land reforms in the country. Almost a century later it continues to account for 23% of the land acquisition and distribution balance of the failed Comprehensive Agrarian Reform Program (CARP) of the Philippine government, as of last count before Duterte took office. Most farmers who are awarded land to till are failing to amortize and forced to borrow capital in rice production and even for household expenses at usurious rates. Filipino rice farmers often borrow from rice traders and big landlords. They also rent threshers and harvesters from equipment owners who are usually also their palay buyers.

For instance, according to women peasant federation Amihan, land rent to date in Nueva Ecija province, the country’s top rice producer, comprises about 10% of the Filipino rice farmer’s cost of production.  About 60% of the palay cost of production, with most of the inputs even overpriced, is borrowed under usurious interest rates, which eat up 18% of the rice farmer’s gross farm income. Each harvest season at the palay farmgate price of Php19.50, the rice farmer is left with Php740 or only a measly Php6.17 a day. In most rice producing areas in the Central Luzon region, Php14 is the prevailing farmgate price. Even at a Php21 farmgate price, farmers’ average monthly income of Php6,000 is far short of IBON’s estimated monthly family living wage. Flooding the market with imported rice will only aggravate farmers’ woes of tenancy and overpriced production. It will push farmgate prices down, causing the already insufficient income of farmers to fall further.

The RCEF is more about subsidizing the equipment, seed and chemicals already being peddled to rice farmers by private-sector money-makers in partnership with government. For example, the World Bank-sponsored Philippine Rural Development Project (PRDP) with the DA “supports” farmers’ associations with implements on credit. RCEF may simply facilitate how farmers should repay this.

There is no genuine land distribution, nor comprehensive support for rice farmers for them to significantly raise their incomes. Rice tariffication will not put an end to – but only prolong – farmers’ landlessness and poverty, which abusive traders have taken advantage of and will further flourish from upon the rice sector’s further liberalization.

2 . Lower the price of rice. The price of rice is not as simply determined. First, global rice prices are volatile and can become very high depending on the production conditions of exporting countries. Rice production of Vietnam and Thailand is subsidized and incentivized, making their rice cheap. But they can decide for instance to prioritize their local consumption and ban exports, making that cheap rice unavailable to Filipino consumers. Secondly, price manipulation by domestic rice traders can keep prices high even when cheap imports indeed arrive.

From 1995-2010, the landed cost and wholesale prices of imported rice were higher than the local wholesale and retail prices of regular milled rice. But starting in 2011 when the country had unprecedented increase in smuggled rice, local prices have since become markedly higher than imported rice prices. This only shows that indeed the price of rice in the domestic market may be lower, but only if there is an influx of imported rice.

Yet, local rice prices may still rise despite importation, which proves that there are other factors that influence rice prices. From 2008-2010, the country imported an annual average of 2.2 million MT, but the price of rice continued to increase on an annual average of Php1.20 until 2016.

At a current global rice price of US$400 per MT (Php21.20 per kilo), applying the 35% tariff makes it Php29 per kilo, then adding other insurance charges, is still lower than the prevailing retail price of Php40-44 of regular and well milled rice. But the landed cost of imported rice remains volatile and subject to the vagaries of the world market.

Additionally, government has not been able to control the price of imported rice when sold in the local market because it does not have active production monitoring and price regulatory mechanisms in place. For instance, the National Food Authority’s (NFA) procurement price of Php17 per kilo has not increased since 2007. The government has also not increased subsidies for the problematic agency. A Commission on Audit (COA) report showed that in 2017, the NFA accomplished only 18.6% of its target and even diverted its Php5.1 billion Food Security Program budget to pay maturing debts.

The NFA failed to buy rice at competitive farmgate prices, sell cheap local rice to the domestic market and ensure sufficient local supply. Thus, while global rice prices have been generally falling from 2008 until 2012, local prices increased as big traders dominated the market.

Under rice tariffication, instead of strengthening government’s mandate to procure and sell locally produced rice and stabilize prices, the NFA’s powers to do so is being significantly clipped. It will now only ensure the buffer stock of rice for emergency situations – through importation.

3 . Ensure stable rice supply. With rice tariffication, the Philippine government is almost totally relying on a very limited market for the country’s food security. Only about 5% of global rice production ends up in the global market. The rest is consumed locally, where it is produced. Philippine food security is at the mercy of then Philippine-taught, now government-subsidized rice producers of Thailand and Vietnam.

This is unfortunate because as it is, despite the lack of government support for the sector, the country is in fact one of the world’s top producers of rice, even yielding a surplus of 2.7 million MT towards 2018.

This means that should government fully support local production by providing farmers the basic resources and implements at little or no cost, there would no longer be a need to rely on rice imports, and subject the populace to food insufficiency.

Who won?

Rice tariffication will institutionalize private traders and cartels. They will now be on top of buying and selling rice, importing as much as they want and setting the price. This, due to the removal of government’s erstwhile regulatory or price-stabilizing mandate through the NFA. Instead of unleashing the potential of the country as rice producer, rice tariffication has turned the grains sector into a trading one at the expense of farmers and the country’s food security.

In recent years, top rice importers included Silent Royalty Marketing, Bold Bidder Marketing and General Merchandise, Starcraft International Trading, Intercontinental Grains, and Medaglia de Oro Trading. According to the Bureau of Customs, some of these firms have been involved in rice smuggling cases.

Can be done

House Bill 8512 – or the proposed “Rice Industry Development Act” filed by progressive lawmakers allocates an annual Php61 billion for three years or a total of Php185 billion for the development of the rice sector. (Of this, the Php49.8 billion 2019 national budget allocation for the Department of Agriculture still falls short). The amount is spread across subsidies of rice production and socialized credit; irrigation development, repair and rehabilitation of existing irrigation systems; post-harvest facilities development; farm inputs; and research and development of sustainable agriculture technologies. The proposal presumes free land distribution described in the Genuine Agrarian Reform Bill, which requires Php313 billion or Php62.6 billion annually for five years.

Government should be able to buy reasonably from rice producers to secure stable food supply and set affordable rates for Filipino consumers.  To do this, according to rice watchdog Bantay Bigas, the government must allocate roughly Php50.60-Php126.40 billion to buy 10-25% of local palay production. This would ensure a buffer stock of sufficient rice supply for 51 to 128 days. At Php20 buying price, this is also estimated to raise the income of Filipino rice farmers by Php12,000 or to Php80,000 from the current Php68,000 gross income from 80 cavans per hectare bought at Php17 per kilo.

KMP said that to ensure stable rice supply and affordable prices, all that government needs to do is to take charge in beefing up the rice industry and boosting local production. This, so that there would no longer be any need to rely on external sources for the country’s staple. In that case, the country can have sufficient and even surplus production, with which government can ensure reasonably low prices.

Should global prices spike and rice supply diminish, the Philippines might even be able to consider coming to the aid of countries in need. After all, the Philippines used to be a significant rice exporting country, well before globalization’s business-biased economic policies started kicking in. – IBON FEATURES