“The immutable law of supply and demand tells us that when supply is low, and demand is high, prices will increase”
(Part 1)
Our previous economic managers convinced Congress that rice tariffication instead of quantitative import restrictions was the way to go.
They took advantage of a not-too-serious rice price crisis in 2018 brought about by inventory mismanagement by the then NFA administration, which was at loggerheads with the presidential adviser under whom supervision of the rice regulatory agency was kept.
So Congress passed RA 11203, which President Duterte signed into law on Valentine’s Day, 2019, which aimed to lower the price of rice for consumers, while providing funds from tariff collections to improve farm productivity.
The removal of quantitative restrictions on rice importation was long advocated by previous economic managers along with free trade champions in the business community.
The WTO which we joined in 1995 also frowned on quantitative restrictions. We were thrice granted extensions by the WTO, the last till 2017.
Then COVID 19 came a year after, and, aside from lockdowns which distorted the free movement of goods and even people, both production and distribution suffered.
The situation was exacerbated by Russia’s invasion of Ukraine which resulted in the cost of oil, grains and fertilizers, along with logistics to spike upwards.
Then NEDA director-general Karl Kendrick Chua claimed RTL was successful in taming rice prices while palay production increased in 2021 to 20 million tons, 3.5 percent higher compared to 2020.
But 2020 was the height of COVID-19 and the lockdowns, so we must treat the comparison with some grains of salt. In 2021, rice imports rose to 2.9 million tons.
Palay farmers complain that RTL, which was met with a massive flood of private sector imports, resulted in very low farm-gate prices, at P15 to P17 per kilo.
When the new administration took over mid-2022, it was met with a flurry of price increases in many commodities, from sugar to rice, to even onions, the price of which got housewives and cooks to cry a river each time they sliced the aromatic.
Rice prices kept creeping up since, and ballooned when India, the world’s biggest exporter, banned exports of non-basmati rice to protect the domestic market.
Since 2021, we have become the world’s largest rice importer.
I dispute this appellation though, because China with its 1.4 billion people does not quite report actual import volumes, especially the usual cross-border trade between Vietnam and the provinces of Guangxi, Guangdong and Nanning.
Still, our import volumes defy all incremental palay production gains.
In 2010 when I took over the NFA, I was shocked to note that government, both by its account and that of privately-financed zero-tariff imports, had 2.25 million tons for that year, 10 percent over the previous year, almost all from Vietnam.
NFA calculated the per person consumption of rice at 132 kilos per year, thus requiring national consumption at 12.5 million tons with 94.6 million population then.
After a review by the Bureau of Agricultural Statistics (before it was subsumed into the PSA and NEDA), we brought down the estimated per capita consumption to 120 kilos, 10 percent lower, which meant an equivalent lower demand for importation.
Since palay production then amounted to some 18 million tons, the equivalent local rice was at 10.8 million tons, more or less.
The shortfall was 1.7 million, but accounting for our over-importation in 2010, where we inherited 59 days inventory (as against the regulatory 15 to 30 days), along with 178 billion in sovereign debt, we reduced NFA imports to 200,000 tons, and allowed the private sector to import 660,000 tons.
We had no shortage nor price spikes in 2011 despite reduced importation, and in place of zero tariffs, NFA bidded out the import permits to earn some income that the BoC forfeited, where before these were merely awarded on a questionable first-come, first-served basis.
The immutable law of supply and demand tells us that when supply is low, and demand is high, prices will increase.
So clearly, we have to look at the rice problem first by determining what really is the country’s consumption versus what its palay farmers produce.
Why did NFA during the last three years of PGMA peg consumption at 132 per capita?
Was that the product of correct number-crunching, or was it a political decision?
One has to reckon that in this and other countries, staples like rice are subject to the economics as well as the politics of rice.
And often, the political considerations trump economic sense, because a rice shortage and high rice prices bring down approval ratings, and impact on electoral chances. (To be continued)