In recent weeks, several staunch advocates of the liberalization of the rice sector released a series of opinion pieces, touting the alleged gains from Republic Act No. 11203 or the Rice Tariffication Law (RTL) and debunking the claims of critics of the law and its implementation. This paper seeks to set the record straight by assessing what really happened, using mutually acceptable assumptions and more precise calculations, with the hope that the findings will point policy makers and stakeholders in the rice industry to a more realistic and productive way forward.
Recap
To review, RA 11203 was signed by President Rodrigo Duterte on February 14 and took effect on March 5, 2019. The law removed government limits, called quantitative restrictions (QRs) on rice importation. Traders could now bring in unlimited volumes of rice at any time. RA 11203 far exceeded Philippine commitments to the World Trade Organization (WTO) by deregulating the rice industry and eliminating practically all regulatory and trading functions of the National Food Authority (NFA) and reducing it to a buffer stocking and calamity relief agency. Aptly, the formal title of RA 11203 is “An Act Liberalizing the Importation, Exportation and Trading of Rice”.
Following WTO’s tariffication procedure, rice QRs were replaced by tariffs, most notably the 35% preferential duty that the Philippines had previously imposed on imports from ASEAN countries. RA 11203 also created the Rice Competitiveness Enhancement Fund (RCEF), amounting to Php 10 billion annually for six years, to assist rice farmers with seeds, farm machineries, credit and technical extension.
In the lead up to RA 11203, many RTL proponents prophesied that import liberalization would significantly lower domestic rice prices, tame inflation, and moderate malnutrition and poverty. While acknowledging that farmers would get hurt in the immediate term, they promised even larger benefits to consumers, including those farmers who were net rice buyers.
The question now is: Did this trade-off, described as a “no brainer” by then Director-General Ernesto Pernia of the National Economic and Development Authority (NEDA), actualy happen during the first year (March 2019 to February 2020) of RTL’s implementation?
In brief, no! This analysis shows that rice farmers suffered drastic losses, which far surpassed any gains to consumers. In addition, a few importers and big-time traders cornered tremendous profits from rice trade liberalization at the expense of millions of farmers, millers and other market players, who were swamped by the deluge of cheap and undervalued rice imports. RTL came out to mean “Rice Traders Liberated, at last!”
In 2019, with nearly three million tons of imported rice, the Philippines overtook China and received the dubious honor of being the world’s biggest rice importer.
As stated previously, RTL seriously clipped government’s supervision over the rice industry and effectively ceded control to the private sector. By doing so, it has undermined its capacity to stabilize the rice market, safeguard producer and consumer welfare, ensure food safety, and sustain efforts aimed at food security.
How did farmers fare in the first year of RTL?
Analyzing the situation further, let us first tackle the impact of trade liberalization on farmers. Earlier, the Federation of Free Farmers (FFF) and other groups had estimated that rice producers lost around Php 80 billion in 2019 due to palay prices plumneting from a high of Php 23.14 per kilo in September 2018 to a low of Php 15.36 in 2019. A more precise recalculation, using monthly price and production data from the Philippine Statistics Authority (PSA), yields practically the same outcome. (See Annex A.)
Coincidentally, the results are close to PSA’s own computation of a Php 87 billion reduction in the palay sector’s value of production in 2019 compared to the previous year.
Why did palay prices drop so precipitously? To address the rice crisis in late 2018, the government allowed NFA and the private sector to import an additional 1.5 million metric tons, of which some 1 million entered the country in January and February 2019. Although these imports normalized inventory levels, they immediately pressed rice, and inevitably, palay prices downward. By February 2019, palay farmgate prices had dropped by 16.5% to a monthly average of Php 18.40 per kilo, from their high of Php 22.04 in September 2018.
With RTL in place in early March, another 2 million tons arrived during the next seven months. This created a serious glut that, by September 2019, raised national stocks to 42% over historical levels. (See Annex B.) The oversupply coincided with the peak of the main harvest season in October and November, making it difficult for traders to dispose of their stocks in a market flooded with imported rice. Some suspended their operations; others continued buying palay, but at deeply discounted prices. Prices plunged further to an average of Php 14.40 per kilo in October.
Prompted by farmers groups, in September 2019, the DA initiated an investigation on possibly imposing safeguard duties to stem the flow of imports. Inexplicably, the DA ended its study and refused to apply a provisional safeguard duty allowed by law. Instead, it tightened the issuance of sanitary and phytosanitary import clearances. Meanwhile, the NFA and local government units intensified their palay buying operations. By then, however, most of the damage had already been done.
Pro-RTL proponents have criticized the estimates of farmers’ losses as exaggerated, noting that the latter used an annual (January to December) data series, instead of a March to February data cycle that would match the implementation period of the RTL. They added that prices should not be compared to rates in 2018, which was a crisis year during which rice prices were abnormally high. Further, they argued that only the 83% of production thatfarmers actually sold in the market, called marketable surplus, should be used in the computations, since the 17% that they kept for their own consumption was not affected by any movement in market prices.
Before responding to these observations, it should be emphasized that the Php 80 billion loss estimate was accurate and real if palay prices during the first year of RTL were compared to prices in the same 12 month period of the previous year. Farmers did incur a drop in their income equivalent to Php 80 billion compared to what they earned in the preceding 12 months. Furthermore, the palay that farmers did not sell commercially was an asset whose value could go up or down while in storage. This change in value could still be reasonably treated as an imputed gain or loss.
Nevertheless, we proceeded with our recalculations, using March 2017-Feb 2018 (instead of March 2018-February 2019) as the reference period and recognizing only the marketable surplus of farmers. With these adjustments, farmers’ losses during RTL’s first year will be halved to about Php 40 billion. This number is still significantly large.
Notably, it approximates the Php 38.4 billion in losses estimated by NEDA’s Philippine Institute of Development Studies (PIDS) when using a similar reference period.
RTL defenders further argue that farmers’ net losses would just be Php 6 billion if government support to them is taken into account. However, their idea of fully crediting the Php 10 billion RCEF for 2019 is illogical, because only about Php 3 billion were actually given to farmers, mainly in the form of free seeds. Oddly, they also want to deduct in full the RCEF, SURE-Aid and other soft loans, which farmers have to pay back. If ever, only the interest subsidy should be considered a benefit, and this will be minimal since only around Php 4 billion were actually lent out to farmers. While Php 3 billion were given separately as partial compensation for lost income under RTL, only one-fourth of all farmers qualified for this Php P5,000 assistance. Overall, the creditable subsidies actually received by farmers would amount to about Php 6 billion. Farmers would still end up with a consolidated loss of Php 34 billion. The RTL proponents are duty-bound to show how they arrived at a considerably smaller net loss figure of Php 6 billion.
Clearly, farmers were worse off in the first year of RTL. On average, palay prices under RTL were Php 4.28 per kilo lower than those in the preceding 12-month period (March 2018 to February 2019). Even against the more “normal” period from March 2017 to February 2018, farmgate prices were still by Php 2.60 per kilo. Cumulative losses from gross palay production amounted to about Php 80 billion when comparing pre- and post-RTL prices; and half of that (Php40 billion) when using 2017-18 prices as reference and counting only marketable surplus. Compared to the 12-month period preceding RTL, farmers’ incomes dropped by 21%, or Php 17,355 per cropping per hectare on the average.
Did consumers gain due to RTL as promised?
This, however, is only half of the story. Pro-RTL advocates had theorized that consumers would be the biggest winners under rice liberalization. The question is: were they?
Winners and losers from the rice tariffication law
