The economic managers are of a mind to not seek any extension of the quantitative restrictions on the importation of rice, our staple food commodity.
But the Agriculture Secretary says the palay farmers of the land are not ready, and would prefer to seek another two-year extension, with the hope that by then, our farmers will be competitive enough.
Let me give our readers a backgrounder. Upon our accession to a regime of free trade under the World Trade Organization in 1995, where barriers to the free flow of trade among member nations would be lifted, the Philippines sought, and was granted, 10 years within which to deregulate the importation of rice. As such, the Philippines imposed a quantitative restriction on the importation of rice, and only government was allowed to import the commodity. The 10-year period should have made our agricultural modernization efforts work towards making our rice price-competitive in the world market.
But in 2005, we were still not competitive, so our agriculture department, approved by the President and her economic managers, sought a second extension which was eventually granted, giving the country another seven years within which to make our palay farmers more competitive. This did not come without cost. We had to open up minimum access to our market for agricultural products, not only for rice but for frozen meat among others. So since then, in the case of rice, we allowed minimum access volumes of some 320,000 tons or over 6 million bags annually. The private sector could import through the minimum access volume subject to a 40-percent duty collected by the Bureau of Customs.
Only two countries were given such a consideration by the WTO: South Korea and the Philippines. Our QR would expire 30 June 2012, unless further extended. In 2011, Budget Secretary Butch Abad and the other economic managers wanted to allow the quantitative restrictions to expire accordingly, but because then-Agriculture Secretary Proceso Alcala promised President Benigno S. Aquino III that he could achieve rice self-sufficiency by 2014, the president agreed to seek another extension, this time for five years.
Though uncertain about the possibility of another extension, I went to the WTO in Geneva along with DA officials, to present our case. The US, Australia, Thailand, China, Vietnam, India, Pakistan and curiously, El Salvador, sought to negotiate with the Philippines. Under WTO rules, a single country objecting to the extension would have been enough to write finis to our request. To get them to agree, we had to negotiate bilaterally with each of these countries.
I thought that China would be the most intransigent to our extension, not because they export huge volumes of rice, but because we were embroiled in a conflict over the West Philippine Sea issue at the time (until now, actually). So as lead negotiator, I decided to seek a bilateral meeting with their Ministry of Commerce, which finally occurred in April 2012. I thought then that if China disagreed, then there was no point talking to the other countries.
Upon arrival in Beijing, I was met by our agriculture attaché, who was quite worried about our prospects because a week before, China had rejected a batch of banana shipments due to “insect infestation.” We expected rough sailing, but fortuitously, we succeeded in getting their Ministry of Commerce officials to support our sought-for extension in a meeting that lasted just about 40 minutes, subject only to a proportionate increase from our 25,000 China MAV country-specific quota with whatever we would grant the other countries.
What followed was a frenzy of negotiations with India, Pakistan, Vietnam and Thailand, with the last being the most difficult and most demanding. To cut a long story short, by end-September 2012, when I resigned as NFA administrator to file my COC for a seat in Congress on October 1, 2012, we had secured agreements with China, India, Pakistan, and Vietnam, although closer to an agreement with Thailand. Negotiations with Australia and the United States were to be taken up by DA officials because their demands included contentious meat exports which would impact against the interests of our hog and poultry industries, and these were not within the province of NFA, having their own agencies under the DA.
The five-year retroactive extension was granted sometime in 2014, which thus would end on 30 June 2017. The minimum access volume has increased to 805,000 metric tons, an increase of some half a million tons. And we have had to allow more imports of frozen meat from the US and elsewhere. Meanwhile, despite throwing billions and billions of pesos on Alcala’s self-sufficiency quest, we failed to achieve either the self-sufficiency nor have our farmers become competitive versus their Asean neighbors.
At present, for instance, the prevailing freight-on-board price of long-grain rice in the Asean market is around 385 dollars per ton. This is around P900 per 50-kg. sack. Even if we add logistics and pre-inspection costs, that would only amount to around 1,050 per sack, or P21 per kilo landed cost if NFA does the tax-free importation. If the private sector correctly pays a reduced 35-percent tariff, that would amount to 1,400 per sack or P28 per kilo.
NFA charges P27 for regular-milled rice (which has become quite scarce) and P34 for well-milled 25-percent broken rice (the kind it imports). The commercial sector, on the other hand, which buys and mills 95 percent to 97 percent of total domestic palay production from our farmers, sells at anywhere from P37 to P45, excepting the fancy variety which services a high-end niche market.
Thus, no matter how you slice the market situation, our palay farmers cannot compete as yet with the Asean competition, principally the majors, Vietnam and Thailand, and even India and Pakistan, despite the higher freight costs due to comparative distance. Wait until Cambodia and Myanmar modernize their palay/rice industry.
Our farmers produce palay at an average cost of P11 per kilo. Their Viet counterpart produces the same at P7 to P8 per kilo; their Thai counterpart a bit more.
It is against the backdrop of these market realities that the debate between trying for self-sufficiency in rice (which DA wants) and opening up the market through the non-extension of our WTO quantitative restriction privilege come June 30 next year (which our economic managers want) must be definitively decided upon.
(To be continued next week.)