Now that our economic policy-makers have decided to live with the lifting of quantitative restrictions on rice importation, leaving rice economics to market forces, let us end the series with the “politics of rice.”
Food security is basic. A lack of it is not just a political issue. It is a national security problem. The question though is whether food security, which means the availability and affordability of food, should be defined as rice self-sufficiency.
Media and the public at large equate food security with self-sufficiency. They keep pointing to the brief interludes in our contemporary history when we were able to produce the staple food that we ate, and recall those halcyon days when the Thais and Vietnamese came to the country to train in agriculture. “Those were the days…,” they keep harking, but will those days ever come back, what with our lopsided demographic realities?
Note that on top of a production to consumption parity, we still need rice reserves, to meet contingencies such as natural or man-made calamities. Our policy-makers have defined that requirement as having on reserve stock at least 15 days of the national consumption, which should amount to 500,000 tons at any given time. But for the so-called “lean months,” which coincide with the monsoon and typhoon season (July to September) and in-between our harvests, we increase this by an additional 15 days, or a total of one million tons (20 million bags) of rice, strategically positioned in the warehouses of the National Food Authority all over the country.
Due to El Niño, La Niña, strong typhoons, limited irrigation and inventory mismanagement, not to mention over-importation of the staple, NFA in 2010 piled up a “legacy debt” (that’s how PNoy called it) of P178 billion. There is no way the NFA could pay this huge debt. Part of the legacy was a stockpile of rice that reached almost 60 days of the average national consumption in 2010, which required NFA’s leasing some 800 bodegas on top of its 750 owned warehouses.
Thus, the economic managers decreed that this time, the bulk of rice imports were to made by the private sector under a “private-sector funded” program, where NFA awarded import permits to private traders and farmer cooperatives instead of the government itself importing and financing the importation. This policy was started during the Arroyo administration but conversely, NFA imported the bulk (90 percent) leaving the 10 percent for the private sector.
The difference is that under the PNoy government, we bid out the permits in open tender. Previously, the import permits were simply given out on a first-come, first-served basis, which means whoever among the traders and co-ops arrived first on “bidding” day got the permit, and bonds submitted were reimbursable if the “winning” traders or co-ops brought the rice on time.
The other difference is that we imported much less in the first two years of the PNoy government. For 2010, the “legacy” importation was a total of 2 million 50 thousand tons for government account, and 225,000 for the private sector. In 2011, we reduced NFA or government imports to just 200,000 and further down in 2012 to 120,000 tons. Hence, NFA’s “legacy debt” was trimmed to just about P145 billion from P178 billion, a decrease of some P33 billion.
The private sector was allowed to import 660,000 tons in 2011 and a lower 380,000 in 2012. Plus the minimum access volume (MAV) of 320,000 tons as agreed upon in 1995 under WTO negotiations. Because we bidded out permits rather than merely awarding them to favored sectors, NFA earned P4.3 billion, apart from cutting its huge indebtedness.
But the policy was again reversed by DA under Alcala when they realized that self-sufficiency was not attainable by 2014 as promised, blaming failure on typhoons (which happen every year and should always have been a given in policy formulation). By 2013, NFA was back to importing on its own (and guaranteed by the national government) account. And importing by the millions of tons each year once more (roughly one million tons each year). The financial result of this reversal is what the National Economic and Development Authority and the Department of Finance have now discovered as PNoy’s “legacy debt” to Duterte: NFA’s debt is back to the P170-billion level.
Now, come June 30, 2017, we will enter full deregulation of the rice market. Which means any trader, cooperative, or person can open a letter of credit to import rice from wherever, provided he pays a 35-percent duty to the Bureau of Customs. This duty, under our trade agreement with Asean member-countries, will progressively decline.
At current spot prices of $385 per ton, add some 40 dollars more for logistics, or $425, compute a 35-percent tariff, and roughly, a ton of rice, which is 20 bags of 50 kilos apiece, would cost $575 or $ 28.75 per bag. Translated at 48 to $1, that’s only P1,380 per sack—or 27.60 per kilo.
It costs our farmers P11 at present to produce one kilo of palay, so they would sell at P17 to P19 per kilo. The miller recovers 60 to 65 percent white rice per kilo of palay, or a cost of roughly P32. The retail price is around P41 per kilo upwards, depending on the quality of rice. Compare that to rice imported from Vietnam or Thailand the landed cost of which, tariff included, is P27 to P28.
Neda states that the economics of rice importation will benefit consumers, because rice prices will go down, from the present 40s to the low to mid-30s. A price reduction of P10 per kilo would certainly be a relief to 104 million rice-eaters.
But the DA worries understandably about the farmers.
And yet, the solution that straddles the political as well as the economic side of the rice conundrum is really for government to assist farmers on the input side, rather than artificially prop up the industry through price-support mechanisms and quantitative restrictions. These do not only cost the taxpayers billions in subsidies and sovereign loans; they also fail to make the rice farmer more productive and competitive.
This means free irrigation, as the DA and the current political leadership promise. Subsidize hybrid seeds that will triple productivity, and extend credit for fertilizers both organic and inorganic. Teach the farmers to apply the right technologies, and protect them from weather vagaries through crop insurance. Consolidate agrarian reform beneficiaries into viable cooperatives, or partner with the private sector to achieve economies of scale that would afford agricultural modernization and managerial competence. And make farmers cultivating rice in less-suited lands shift to high-value crops. For in the end, the focus should be on making the farms productive and farming profitable.
That will cost government, too, but it is better than insisting on a policy of attaining self-sufficiency at all costs, mostly wasteful. In Malaysia, for instance, the practice is produce 65 percent of consumption requirements, and import 35 percent, while using the land for high-value crops like rubber and palm.
It will take more articles than this series of three to dissect the policy options. But it is best to understand that firstly, food security does not come without a cost. Two, good economics is always better politics. And finally, both good economics and good politics are possible only under a regime of good governance, which means not only zero tolerance for corruption, but also good sense.
