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To help our poor rice farmers, the government made it a policy to buy their output at a price that guarantees enough revenues to cover their production costs and some extra for their other needs. Like our farmers, however, most of our people outside the farms are also poor. To guarantee that they have enough food to eat, the government sells rice below cost through the National Food Authority-licensed retailers.
Separately, both actions look good, except that helping the poor farmers and consumers at the same time is not easy to do, unless the government is willing to foot the bill that can only be supported through more taxes or at the expense of cutting the provision of other vital government services. Anyway, as we all know already, the NFA buys only a small fraction of the country’s output, forcing many of our farmers to stop planting rice by switching to other crops or selling their land to other people who will use them for residential, commercial, industrial or other non-farming activities. The result is lower rice output in the end, of course. Second, in selling rice below cost, the NFA, aside from losing a lot of money every year, opens itself to more opportunities for corruption by its people: diverting NFA rice for kickbacks to private traders for commercial sale.
Because local rice production is limited, we import a good part of our rice supply from our neighbors in Asia. But this we do mainly through the NFA for distribution to its licensed retailers. The little that is allowed to be imported outside of NFA is given only to its authorized importers and made to pay a 50-percent tariff to protect the local producers. As usual in government, deciding who will be given the right to import rice can be very arbitrary, thus opening up another room for corruption in government. Protecting our local farmers through tariff may look good, but a tariff as high as 50 percent may only make it more inviting for unscrupulous traders to smuggle rice.
Despite some problems and huge losses, government control in the rice market seemed to work well in the past. That was when the export of rice from Thailand, Vietnam and other surplus-producing countries in Asia were more than enough to meet the import needs of their rice deficit neighbors, like Indonesia, Bangladesh and our country. But beginning last year and early this year, the supply of rice is tightening worldwide for many reasons: climate change, bio-fuel production, and continuing rapid population growth in some parts of the world, like the Philippines again. This resulted in higher prices and the inability of the NFA to get its desired volume of imports early this year and for the import quota holders not to import as much as before. In the past two years, the private sector is reported to use only 10 percent of the 300 metric tons of rice that they were allowed to import.
The World Bank, in its report during the Philippine Development Forum held in Clark, Pampanga, more than two weeks ago, recommended lowering the tariff, which, at 50 percent, also makes our retail price of rice more expensive. The government disagreed. On Monday last week, President Gloria Macapagal Arroyo ordered the lifting of the quota instead. The lifting may make this government appear to loosen its grip on the rice market, but with the 50-percent tariff still on, the pressure for the price of rice in the local market to remain high continues. What is worst is that while the quota was lifted, last Tuesday, Agriculture Secretary Arthur Yap also announced that private importers are actually barred from directly buying the cereal from overseas markets. The NFA will still be importing rice on behalf of the private sector.
Bert Hofman, World Bank country director for the Philippines, thinks otherwise. He suggests not only bringing down the 50-percent import duty of rice but also allowing the private sector to directly import rice. These two proposals are very sensible. On one hand, giving the private sector freedom to import outside of the NFA channel will make them source actively for supply, which they know better than any of the government technocrats who are mostly ignorant of business. On the other hand, lowering the tariff will also relieve them from raising the price of rice locally beyond the reach of many poor consumers. These, however, the people in government cannot see, and it makes me wonder why they are in government at all.
What about the local farmers, will they not be discouraged from the lifting of the quota and lowering of the tariff? First, the tariff, when lowered, can still be set high enough to make up for the high cost of local production. Second, outside of import quota and high tariff of rice import, there are still many other ways to help our farmers become competitive in the world market if the government really wants it and if things like the fertilizer scam before the 2004 election were prevented.
