As rice remains the Philippines’ dietary staple and the biggest part of its agricultural sector — by volume, at least — it has been more a political subject than an economic one for longer than anyone can remember, and has become, for the nth time, a hot-button issue due to the stresses of the coronavirus pandemic.
The overblown importance of rice has allowed one of the least value-adding sectors of the economy to hold the rest of the country hostage to its short-term and short-sighted demands that its dysfunctional state be preserved, hindering progress in agricultural development, food security and overall growth. And it needs to stop.
The current controversy, if it can even be called that, is exactly the same as any of the dozens of times prior to this that it was dragged to the fore: rice farmers are complaining that farmgate prices of palay (unmilled rice) are too low for them to survive, which they ascribe to the importation of rice under the program provided for by the Rice Tariffication Law, the favorite target for blame for their own lack of productivity since it was enacted last year. Because of “unlimited rice imports,” the farmers’ representatives have charged, palay prices have dropped almost 30 percent from their levels in 2018, to about P16 per kilo.
The consensus among rice farmers, based on statements made in various media reports, is that the farmgate price of palay needs to be about P22 per kilo, or roughly its level at this time in 2018 (the national average in the fourth week of September 2018, according to government data, was 22.93 per kilo). The reason for this is that production costs average about P12 per kilo, so at much below P22 per kilo, or so they say, the profit is not enough to sustain them until the next harvest.
In an effort to end the rice import scheme, or at least undermine it by forcing the government to impose “safeguard tariffs” on imported rice, farmers have reportedly taken to refusing assistance under the Rice Competitiveness Enhancement Fund (RCEF), a facility that effectively subsidizes local farmers using the proceeds of tariffs collected from rice imports. Raul Montemayor, the national manager of the Federation of Free Farmers (FFF), explained the rationale in a statement on Sunday. Keeping palay prices stable through the application of safeguard duties or additional tariffs on imported rice would have been a more cost-effective approach, he argued.
“The government allowed unlimited rice imports, resulting in low palay prices. Now it will spend P3 billion to partially offset farmers’ losses. If it had instead imposed additional duties on imports, palay prices would not have dropped too much, there would have been no need for cash aid to farmers and the government might have even earned extra revenues from the safeguard duties,” Montemayor said.
“Safeguard duties will not be inflationary, as claimed by the DA (Department of Agriculture), because they will be applied only when there is already a proven oversupply in the market. They can be removed once the situation stabilizes,” he added.
Here’s a bit of reality for the persecuted rice sector. First, the claim of P22 per kilo being a required minimum sounds a bit greedy, as the P22.93-per-kilo price in 2018 was an aberration due to a supply crisis at that time. Other than that period, palay prices have not even been close to that level at this time of the year, at least in the past five years. At this time last year, prices were even lower than they are now, averaging just P15.82 per kilo. That was, in fact, due to a bit of a supply glut, which the DA and National Food Authority (NFA) addressed by taking steps to moderate imports, mainly through limiting permits.
Second, reports from rice millers and traders in the past few weeks are that the current harvest is of poor quality, “chalky and high brokens (broken grains) content,” one expert said, and cannot be bought at the higher price because it would have to be sold at a much lower-grade retail price. That is inevitable market function at work, something the rice farming sector would prefer that everyone overlook.
In the current “crisis,” the government has taken some steps to curb imports by making cooperatives ineligible for import permits and signaling that the issuance of permits in general would be a bit more stringent, but that can only go so far before risking a repeat of 2018’s shortages. In any event, even if stricter measures are imposed, such as a protective tariff, prices may not change fast enough or to a large enough degree to satisfy the farmers; in 2016 and 2017, prior to the import liberalization, palay farmgate prices ranged between P18 and P20 per kilo, still significantly below the supposed P22 minimum requirement.
For its volume, rice is one of the lowest value crops the Philippines produces, and it is entirely down to poor productivity. The price of a unit of rice, just as any other grain, can only go so high; what makes it a profitable crop is economy of scale and yield per unit of land devoted to it. The government, represented by the DA under the innovative Dr. William Dar, has the right idea: use imports to secure the food supply (thus moderating consumer prices, which always much take precedence over producer prices), and use the proceeds of rice import tariffs to fund the development of the rice sector into something that, even if it ultimately does not provide all of the country’s demand, will at least maximize its potential — consolidating growers into units of economic scale, and applying mechanization and plant technology to increase yields.
If they would get on board with the industrial vision for their sector, rice farmers would get richer a whole lot faster than they ever will trying to game the market for their products. It is high time the government, and the country as a whole, stop accommodating their nonsense.
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