It is very tempting to say “We told you so” but pontificating is self-serving and will not bring us anywhere. Unfortunately, this is where we are as far as the Rice Tariffication Law (RTL) is concerned.
We knew all along what was coming. The lifting of quantitative restrictions in the import of rice will allow the entry of more cheap rice from Vietnam and Thailand. This will depress the retail prices of rice and bring relief to consumers, poor and rich alike. With more moderate food prices the poor among us will be more food secure. There will be less pressure to raise wages and to that extent make our industries more competitive.
However as a result, the farm gate of palay will go down and the poor rice farmers will suffer grievous losses in income, as they are painfully going through now. The less productive rice farmers will not be able to compete and will cease planting rice thus further reducing our rice self-sufficiency index.
Dr. Roehlano M. Briones and his colleagues at the Philippine Institute of Development Studies (PIDS) told us so in simulation studies they published as late as 2015. But the responsible people in government were in denial and did not do enough, if any at all, to help prepare our farmers.
PIDS is the country’s leading think thank for all national concerns, including agriculture. It is administratively attached and partly funded by National Economic and Development Authority (NEDA).
What are our options
The first, most logical (but most unwise) is to repeal/amend the RTL. As a sovereign nation, we can do as we please. We can ignore our commitments as a member of the World Trade Organization (WTO) but our whole economy will suffer and in the end our non-compliance will cost us more.
The second option is to invoke provisions of the imports safeguards law (RA 8800) which authorizes the President in the national interest to temporarily re-impose import restrictions and further raise tariffs to protect our domestic economy. The President can do this immediately but this essentially returns us to the status quo and does not address the inherent problems.
Should we raise the rice tariff to say, 70-100%, there will be that much less incentive to import. The local rice supply will be steady and rice retail prices will remain high to the detriment of consumers. With elevated rice retail prices, the palay farm gate prices should return to normal and mollify the suffering farmers.
However, there is no assurance that palay farm gate prices will normalize. The palay farm gate prices drastically dropped with the massive entry of imports but the retail price has hardly moved. This disjoint between farm gate and retail prices is operating as well in coconut. Farm gate prices of whole coconuts have dropped 40% but the retail price of coconut oil has barely changed.
The only sure winners are the few privileged importers who are able to secure import permits from the National Food Authority (NFA) and the rice smugglers and their accomplices in the Bureau of Customs. The high tariff will help keep their nefarious profession very profitable and worth the risk.
The third option is for NFA to buy more palay from farmers and thereby essentially restore its rice trading function. Recall that the mandate of NFA was narrowed down to buffer stocking precisely to reduce its losses. However, in order for NFA to have a significant impact on the market it has to massively scale up its buying operations. At 20 million tons of palay total harvest and at P17 per kilogram farm gate price, the annual palay production is worth P340 billion. To be able to purchase, say, 15-20% of total palay trade, NFA will need P51-P68 billion. The current P7-billion procurement budget of NFA is only good for 2%.
But even assuming NFA has the money (which it does not have), the government subsidy through price support for palay accrue for the most part to the traders and millers but not the farmers because immediately soon after harvest, the palay are already in the hands of the traders and rice mills. NFA does not have the personnel to go to the farms to buy palay directly from the farmers as traders do.
Related to this option is the recent initiative of some provincial governments to buy and sell palay. This may look attractive and timely but it is impractical and unsustainable in the long run. Governments whether national (NFA) or local (LGUs) are never good at doing business. Worse, and pardon the lack of faith, this could be tantamount to decentralizing corruption.
The fourth option is direct payments or cash transfers to farmers as they do in the USA and Europe. The virtue of direct payments is there is less “leakage” compared with material input subsidies like seeds, fertilizers, chemicals and machines.
However in addition to the challenges of identification of bonafide rice farmers, which the Registry Systems for Basic Sectors in Agriculture (RSBSA) is sorting out, the implementation cost could be prohibitive, unsustainable and unfair to non-rice farmers and fisherfolk.
With a physical area of three million hectares planted to rice, every P1,000 per hectare payout will require P3 billion. However, to be meaningful the payout per hectare should be at least P5,000 which is equivalent to P15 billion. But even now the bulk of the budget of the Department of Agriculture (DA) is already monopolized by irrigation development and the rice program. There will be hardly anything left for the other crops, poultry and livestock, and fisheries which have higher returns on investment compared with rice.
Thus at best, the direct cash transfer payments should be for a limited period, say, three years, to help make up in part for the rice farmers’ lost income.
The fifth and probably the most honest and enduring option is to persevere with the RTL. For every change, there are winners and losers and the sooner we accept this fact, the more realistic our responses will be, however bitter particularly with regard to the losers.
As an agronomist, and as a part-time rice farmer myself, I see the challenge as a straightforward one: Rice farmers with reliable irrigation can hold their own against our competitors from Vietnam and Thailand. With an average yield of six tons per hectare and per kilogram cost of P8.00-P10.00, our better farmers are competitive with our neighbors. A farm gate of P17.00 per kilogram is fair enough. A tariff rate of 35% should provide enough protection.
But not the farmers in the rainfed lowlands and uplands.
Thus, our response has to be two-fold: 1) further intensify rice culture in the favorable areas with irrigation, and 2) divert the water-deficient rainfed lowlands and uplands into other higher value crops. In fact, assured of markets, the latter may be better off in the long run.
However in all instances, the farmers need ready access to affordable credit with which to obtain inputs and services to raise productivity. And for this, we have good news.
The recent pronouncement of President Rodrigo Duterte exempting Land Bank of the Philippines (LBP) and Development Bank of the Philippines (DBP) from the requirement to remit half of their earnings to the national treasury allows both government banks to aggressively lend to the agriculture sector even at zero interest rate.
For Land Bank this means it can afford to waive interests (up to P15 billion worth) on loans to small farmers and fisherfolk without jeopardizing its financial health as a universal bank. At 6% nominal interest, the loanable amount is P250 billion.
In the case of DBP, with reported annual income of P5.72 billion, it can afford to lend P95 billion at zero interest rate. But instead of lending to small farmers (which is not in DBP’s mandate), DBP can extend these concessional loans to agribusinesses with which to finance contract growing operations with rice farmers, and achieve essentially the same objective.
Conclusion
Sad to admit but as far as this crop season is concerned, whatever we do now are too little, too late. The measures being talked about for the most part are palliative and will benefit only a fraction of the farmers. They do not address the underlying issues of lack of productivity and competitiveness.
For the immediate, we can help farmers with a cash payment of P5,000 per hectare, equivalent to P15 billion a year, say, for the next three years. This is nowhere close to what rice farmers deserve but this much we can afford. This is in addition to the subsidized farm equipment and seeds worth P8 billion a year provided under the Rice Competitiveness Enhancement Fund (RCEF).
The real, long-term solution is for farmers to have regular, universal access to affordable credit with which to raise their productivity and competitiveness (inclusive financing). This could be jump-started by LBP and DBP through ZERO INTEREST loans using the earnings President Duterte generously allowed the two banks to retain. This should be good for at least the next two years under this Administration.
