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Rice-driven inflation entails policy change, says Finance

The contribution of rice to the inflation rate grew 10 times this year, signaling a need for food policy reforms, the Department of Finance said Thursday.

In a report, the DoF said basic food items such as rice, fish, meat, and vegetables have been major drivers of inflation this year, with the contribution of rice alone rising 10 times to 1 percentage point of the inflation rate.

Philippine Statistics Agency data showed that rice was the number one contributor to inflation in September 2018, and that food items in the consumption basket accounted for more than half of the inflation rate in the same month.

In its presentation during the latest Cabinet meeting, the DoF said that in contrast, the contribution of non-food items such as electricity, gas and other fuels has slowed down since July this year.

Rice tariffication and reforms in food policy are needed to address the repeated rice supply problems,” Finance Secretary Carlos Dominguez III said during the Cabinet meeting.

READ: Rice tariffication certified urgent

The rice tariffication bill, once passed into law, is expected to liberalize the importation of rice. It is aimed at lowering rice prices while providing enough support for local farmers who will be affected by the influx of cheaper rice imports.

This measure has been certified as urgent by President Rodrigo Duterte. Economic managers said liberalizing rice imports will lower the retail price of rice by P2 to P7 per kilo (based on latest estimates), and reduce inflation rate by 0.4 percentage points.

READ: ‘Flood market with rice’

Inflation in September climbed to 6.7 percent from 6.4 percent a month ago, bringing the first nine months’ average to 5 percent, surpassing the target of 2-4 percent set by the government earlier.

Among the short-term measures recommended by the DOF during the meeting were for the Department of Agriculture to undertake steps to bring down food prices, and for the Departments of Social Welfare and Development and of Transportation to speed up the release and distribution of cash cards to the poorest households and fuel subsidy cards to operators of public utility vehicles, respectively.

The release of unconditional cash transfers by the DSWD and fuel subsidies through the Pantawid Pasada Program are among the social mitigation measures under the Tax Reform for Acceleration and Inclusion Act (TRAIN) that are meant to cushion the impact of inflation on vulnerable sectors.

Inflation has continued to rise, however, hitting nine-year highs.

“Food inflation is the main driver of inflation, especially in recent months. The DA, which is the key to bringing down food prices, has been empowered under several presidential directives to put in place measures to increase food supply and bring down food prices,” said Finance Assistant Secretary Antonio Joselito Lambino II in a Malacañang press briefing.

These presidential directives include Administrative Order No. 13, which removed administrative restrictions on the importation of agricultural products.

The President also issued Memorandum Order 26 directing the DA and the Department of Trade and Industry to implement measures to reduce the gap between the farm gate and retail prices of agricultural products.

MO 27, meanwhile, ordered the DA, Department of the Interior and Local Government, Philippine National Police, and the Metro Manila Development Authority to “adopt measures to ensure the efficient and seamless delivery” of imported agricultural and fishery products from ports to markets; while MO 28 directed the National Food Authority to immediately release existing rice stocks in its warehouses.

Lambino said the contribution of fish to inflation has been growing since 2017 while vegetables added to the inflation rate largely because of supply issues due to weather disturbances. The contribution of meat to inflation also rose reflecting a “pricing mismatch.”

The directives issued by the President formed part of the measures unveiled in early September by the Economic Development Cluster of the Cabinet to help rein in inflation.

The DA, meanwhile, announced a massive procurement of rice from local farmers.

Agriculture Secretary Manny Piñol said they will begin by scouting areas where the price of rice is low such as Mindoro and Bicol to help local farmers.

The NFA will buy each kilo of rice for P17 with incentives of up to P3.70.

“A farmer who brings his rice to the NFA at 14 percent moisture content, will be earning P20.70 for every kilo of paddy rice that he brings to the NFA,” said Piñol.

The DA will station drying facilities in all NFA buying stations across the country, which farmers may use for free, he said.

Farmers cooperatives may also use the accumulated points in exchange for farming equipment from the DA such as tractors, rice harvesters and solar power irrigation systems.

Piñol said these measures are aimed at reducing the impact of rice imports on local farmers.

Also on Thursday, Senator Grace Poe said a bill liberalizing rice imports would also provide for a fund that would subsidize local farmers.

Poe is a co-author of Senate Bill 1998 that seeks to lift quantitative restrictions or quota on rice importation by amending Republic Act 8178.

She said the measure is expected to temper inflation, as food prices continue to be the main driver for the rise in commodity prices.

Under SB 1998 or the Rice Tariffication bill sponsored last month by the Senate agriculture committee, rice imports will be slapped a 35 percent tariff rate in lieu of quantitative restrictions that limit the volume of rice imports every year.

The restrictions were originally aimed at protecting local farmers.

As part of the World Trade Organization, the Philippines has secured several extensions of the QR on rice imports, but the last “waiver on the special treatment of rice” expired in June last year.

The legislation also establishes a Rice Competitiveness Enhancement Fund, which will mainly be sourced from rice tariffs, to finance the procurement of farm machinery and equipment, irrigation, subsidies and credit to farmers and rice research to improve the competitiveness of the country’s rice sector.

A party-list lawmaker, meanwhile, said the government’s “unimpeded” rice importation policy should be set aside when the supply situation stabilizes in favor of a production-driven policy that would ensure an adequate supply of the staple.

“At best, the policy of import-till-you-drop should be an ad hoc, temporary measure in answer to an emergency,” Butil Party-list Rep. Cecil Chavez said, as she warned of the dangers of relying on imports to fill in the country’s food security needs.

Chavez, member for the majority bloc of the House of Representatives’ committee on agriculture and food, said delayed imports, natural calamities and the failure to fund a viable rice production program caused the acute rice shortage. And of the three, natural calamities is the one that is irreversible.

“Given the right support, the country’s paddy production could produce the yearly national requirements,” Chavez said. “The problem is with the country’s economic managers who have belittled agriculture and rice production from Day One of President Duterte’s administration,” she added.

She also cited claims of the country’s economic managers that the country is now a “service economy” and so agricultural investments are not worth pursuing.

“According to data, roughly 30 percent of the country’s workforce is still agriculture-based and that alone should push the government to make agricultural investments a priority,” she said. “Sadly, this is not reflected in the 2019 agriculture budget of barely over P50 billion.”

She said the government must be able provide an-all out support to Filipino farmers, having the International Rice Research Institute and the Philippine Rice Institute provide the frontier research work necessary for an intensified rice production program.

“The country’s rice farmers, inheritors of a proud-rice production culture are still the best rice farmers in the ASEAN once given the support of Thai and Vietnamese rice farmers,” Chavez said.

Topics: Department of Finance , inflation rate , Rodrigo Duterte , World Trade Organization
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