Crossroads (Toward Philippine economic and social progress)
Philippine Star, 6 August 2014
Why must we pay a high price for rice, a basic staple? A kilo of rice at retail costs about twice as much what our neighbors spend. Moreover in recent years, rice prices, aside from being already high, have been rising.
Twice early this year, I devoted my discussion to rice issues (See February 5 and 12, 2014). They focused on rice agriculture, the protectionist framework under which it is produced and traded, and the trail of corruption such a system spawns.
We could have cheaper rice. It is possible, through sound policies, to have cheaper rice and a sufficiently adequate rice production at home while assuring that the nation is secure in terms of food supply.
With 100 million people to feed, the home production regime is highly strained for lack of land and sufficient productivity. Orderly imports need to be part of the game.
But, in our case, high rice prices have been a normal experience. Before any one tells us, “Impose price control,” let me say this. Direct price control hardly ever works. It might, for a short period, if at all. Price control also adds so many new economic complications. Life becomes even more difficult for all, just correcting the ills that price control brings.
The subject of rice should be a pleasant one, but not in our context or experience. It should, however, be a priority problem issue to be tackled. It affects the nation’s anti-poverty program, health, and economic growth.
National food policy, a multi-sectoral concern. National food policy is designed to assure that the nation gets sufficient food to feed its population at all times, and shield it from unreasonable fluctuations in price.
Within this context, food policy is not the reserve of any one sector of government, but the combined actions of various agencies. It is agricultural, trade, credit, investment and foreign affairs policy, too. It is a mixed combination of many efforts that need to be coordinated.
Along the linkages with other sectors of action in economic policy, the National Food Authority (NFA) comes significantly into play. This agency has the wherewithal of tools designed to implement most of the operational policies related to food. They involve production, and aligning demand with supply of the grain. In the end, they involve trade, domestic and international.
The agency operates in all manner conceivable related to the economics of basic food items, most of all, rice.
Food price stabilization and economic growth. Drs. Dawe and Timmer recently reviewed the experience across East Asia of rice price stabilization and economic growth. David Dawe was a former economist at IRRI (International Rice Research Institute) and is now with FAO (UN’s Food and Agriculture Organization). C. Peter Timmer, professor emeritus at Harvard University, is an expert with wide experience in agricultural issues of food and a keen observer of Indonesian and East Asian development.
Both observed that economic growth and food security policies produce mutually reinforcing positive outcomes. Observing East and Southeast Asian economies, some successful countries have been able to escape from hunger within two decades or less, within a generation of citizens.
Success in food price stabilization policy was experienced through two levels: “At the ‘macro’ level, the aggregate conditions were created in which households at the ‘micro’ level gained access to food on a reliable basis through self-motivated interactions with local markets and home resources.”
This meant that, through wise and timely actions at the level of aggregate supply and demand policies (the macro-fundamentals), farmers were enabled to produce grain reasonably cheaply and households to buy rice at low prices. Appropriate trade policies facilitated the adjustment of demand and supply conditions.
Successful and less successful cases. Thus, food security at stable prices was achieved even during periods of sharp price surges in rice when world rice supplies were pinched. They gave high marks to the three most populous countries in the world – China, India, and Indonesia – in achieving this.
Reviewing other situations, they also cited practical difficulties that arose when the governments were unable to achieve stable prices.
They continued (I add the bold letters): “Corruption is widespread in many countries, especially when the government plays a major direct role in securing supplies [from domestic or world markets]. Price stabilization, which should ideally lead to domestic prices being equal to world prices on average over the medium-run, can also lead to domestic prices being consistently above world prices for extended periods of time, which hurts the poor because most of the poor are net buyers of food.”
Philippine case. They single out our country for a less successful experience, especially during the sharp increases of world food grain prices in August 2007/, November 2010, and in 2012. In our case, domestic rice prices have been consistently unreasonably above world prices.
What has happened in the Philippine case is that the rice price stabilization program has become a domestic price support for farmers, which helped to worsen poverty, since the system has led to higher domestic prices that had to be protected. Rice producers are fewer than the millions of consumers who buy rice, including the urban poor.
Moreover, the difference between domestic and world prices when we imported rice often went to profits and rents of traders and other non-farming entities. Again, consumers lose in the process.
The system of subsidies of price support and operations in the market distribution led to huge financial losses to the government.
Incidentally, their basis for this conclusion on the Philippine case is Dr. Arsenio Balisacan’s contribution to a conference on food policy before he became NEDA Director General.
One reason why he was appointed to this important post is that he understands the country’s intricate agricultural problems and poverty issues. Disentangling and correcting them will require a David-and-Goliath struggle on food policy.
The David here is Secretary Balisacan and the Goliath is a behemoth, housed in NFA, but with enormous tentacles all over the industry and in the government.
There is, however, a comforting thought in aid of reform.
We still have fresh memories of the infamous fertilizer scam and the pork barrel scandals associated with Janet Napoles and her NGOs. Many of these programs were attractively packaged as agricultural programs. In fact, some of them are even linked directly to the Department of Agriculture.
All these make us mad.
(To be continued)
References: David Dawe and C. Peter Timmer, ‘Why stable food prices are a good thing: Lessons from stabilizing rice prices in Asia,’ Global Food Security, vol. 1 (2012), pp. 127-133; Balisacan, A., Sombilla, M.A., Dikitanan, R.C., 2010, ‘Rice crisis in the Philippines: why did it occur and what are its policy implications? In Dawe, D. (ed.), The Rice Crisis: Markets, Policies and Food Security, FAO and Earthscan, London and Washington D.C., pp. 123-142.
