Introspective
Business World, 3 November 2019

 

Most of the analysis done on the impact of the rice tariffication law make use of fairly recent data, as in what happened to rice imports, palay and rice prices in 2019. It may be useful to look slightly farther back, say in the last 10 to 15 years. Had the changes observed this year been unprecedented? If they had occurred before, the chances of our rice farmers, millers, and traders surviving what would seem now to be extremely adverse situation for the industry are high.

As of August 2019, about 2.4 million tons of rice had been imported. With still few more months to go, the expected import volume this year would break the 10-year record high of 2.439 million tons (see Table).

The National Food Authority (NFA) imported the country’s largest volume in 2008, when world rice prices were at their peak. Vietnam and India, two of the world’s top exporters, restricted their rice exports. Fearing then that it might not be able to buy rice abroad, the NFA accelerated its rice purchases in the first five months of the year, which only aggravated the increase of prices in the world market.

The influence of imports on the retail price depends upon the amount of rice injected into the market. Rice prices in 2008 went up instead, and that may be attributed to the NFA keeping instead of releasing the rice in its warehouses. It imported more in 2008 to build up its stocks in anticipation of much thinner world rice market.

The increase of rice prices in that year had nothing to do with high world prices or local rice scarcity. The NFA increased its buying prices of palay in order to attract farmers to sell rice to it. Farmgate prices of palay did go up from P11.21 a kilogram to about P14.13. With the increase, the NFA’s release price rice went up as well by factor of two. Retail prices then moved up from P24.72 pesos per kilo in 2007 to P32.71 pesos

The comparison between 2019 and 2008 involves two different policy regimes. In 2008, the NFA was the only gate of rice imports into the country. Some rice imports came in undocumented, but still the bulk of foreign rice in the local market was controlled by the NFA.

In 2019, private sector traders, not the NFA, are the dominant players in the rice market. Rice prices go up or down with the decisions of the private sector in keeping or injecting rice into the market.

Why have traders not injected more to further lower rice prices? What may be keeping traders from releasing more is policy uncertainty. Through their lengthy discussions, policy advocates and makers hold the key to lower rice prices. There is uncertainty in the rice market spawned by widespread discussion on the appropriateness of the rice tariffication law, or on what the government can do to mitigate the adverse effect of it on rice farmers.

Some say that Congress should reverse the reform, or at least to temporarily halt or slow down rice imports, if the law cannot be undone for now. Advocates talk about invoking the ordinary safeguards measure, which if adopted would increase the import tariff to over 100% from 35% for at least 200 days. Others would vote for controlling the flow of imported rice with sanitary and photo-sanitary (SPS) permits, which would violate our treaty obligation under the Sanitary and Photo-Sanitary agreement.

Such talk is keeping rice prices up. Traders may be speculating even as I write, that if any of these proposals materialise, i.e. a reversal, safeguard, or some other measure that can effectively reduce imports, the value of the stocks in their warehouses can go up.

The uncertainty was lifted partially, with Congress settling, before they went to recess, for a joint resolution urging the government to enact effective measures to help rice farmers, instead of reversing the rice tariffication law. The short-term measures include increasing the procurement budget of the NFA to buy more rice from farmers, and accelerating the programs intended to increase rice yields, and/or providing cash assistance to rice farmers. Moreover, the Secretary of Agriculture decided it is not time and appropriate to invoke the ordinary safeguards.

These developments may be contributing partly to these latest results. Rice prices continue their slide down, says the Philippine Statistics Authority (PSA). In yesterday’s issue of the Philippine Star (see Louise Maureen Simeon’s article in the business section), the PSA reported that the average wholesale price of well-milled rice was P37.85 per kilogram in the second week of October, or a year-on-year drop of 16%. Retail prices went down by 14.3% to P41.89 per kilogram.

The rice policy reform, so far as the rice market, is concerned seems to be working for rice consumers. But the observed decline may also reflect the seasonal fall of rice prices in the last four months of the year.

The PSA further reported that farmgate prices continued their decline. Year to year, farm prices went down by 26.9%, from P21.23 per kilogram to P15.33.

This is unprecedented! We still have two months to go before the end of the year so the worst for farmers may not be over yet. The second deepest dive of prices happened in 2015, at 14.6%. Since the 1970s, farmers saw their incomes fall year-on-year in only eight years. They had seen farm prices go up by nearly 48%, and that was in 1984. It is understandable that policy advocates and makers raise concern about the plight of rice farmers.

There are short term measures that the government has been urged to pursue such as:

• Targeted procurement of palay by the NFA to the major rice producing areas. The NFA has limited funds, although it has been rightly argued by many that for now it be given a bigger budget for procurement while private traders and millers are figuring how to adjust their business models in light of the new rules.

• Cash assistance to rice farmers.

If these measures help farmers through the main harvest, farmgate prices are expected to improve in the first two to three months of the following year. Hopefully by then, traders resume their purchases of local rice.

The more important measures for helping rice farmers are those which would make the rice reform of 2019 succeed for farmers. These are the programs that would deliver the result, which is that even a family with a one-hectare rice farm increases its income because of the reform. Ironic, considering the farmers are suffering now because of lower prices. But lower prices would mean something different to farmers with a higher rice yield.

The rice tariffication law generates money that the government can use to increase rice yields. But the government should deliver the assistance differently than what other administrations in the past had done, to raise rice farm productivity.