Much ado about imports

Marvin A. Tort

Posted on April 20, 2017

When we need more food than our country can efficiently produce, our option is to import or buy food from abroad. And, given our current population of more than a hundred million, the Philippines obviously need to import a lot of food. While we produce much of our own food, we do not produce enough to cover all our immediate and future needs.

World Bank data put Philippine food imports, as a percentage of total value of merchandise imports, at over 12% in 2015. Just a decade ago, in 2007, food was just around 7% of imports. But, from 2008 onwards, this has been at the 11%-12% range. I am uncertain as to what prompted this increase, but I guess trade policies have something to do with it as well.

Food imports cover food and live animals; beverages and tobacco; animal and vegetable oils and fats; oil seeds, oil nuts, and oil kernels, among others. These include food items for direct consumption as well as food ingredients used in food processing or manufacturing. Demand spikes coupled with tariff cuts and deregulation, among others, can lead to more importation.

Recently, we have seen a number of “changes” in food import policies. These revisions impact on our supply of goods like rice, fruits, meats, and sweeteners like high fructose corn syrup. It remains unclear to me why the government chooses to fiddle with these policies now, although justifications have been stated.

One is inclined to believe that limiting imports temporarily “protect” local producers, which is not necessarily a bad thing in terms of promoting self-sufficiency. However, such protection, other than perhaps being in breach of international trade commitments, may also be encouraging inefficient and thus expensive local production -- to the detriment of consumers.

What confuses me is the seeming inconsistency in policies. An example is the importation of sweeteners like high fructose corn syrup or HFCS, which is used as an alternative to sugar in food and beverage production. Sugar farmers as well as the Sugar Regulatory Administration (SRA) want HFCS imports strictly and heavily regulated and taxed because they dampen sugar prices.

But, this move raises concern over at the Department of Agriculture (DA), which wants a win-win approach that also protects the interest of soft drinks makers that use HFCS as a cheaper sweetener. Instead of supporting limits and tariffs on HFCS imports, DA instead negotiates for an increase in the sugar purchases of soft drinks makers, to appease sugar producers.

To date, the matter is in court, with beverage makers questioning the legality of SRA’s order in February that regulate HFCS imports. The Senate has also started its hearings on the issue, but with no clear solutions or resolutions in sight.

What is confusing to me is that DA Secretary Manny Piñol does not seem to see any harm in allowing the unregulated importation of sugar substitutes like HFCS, despite its adverse impact on the sugar industry, but takes a different stand when it comes to the importation of fruits, meats, and rice, and other farm products.

Last November, Piñol revoked all the licenses to import farm products like fruits and meats, to fight smuggling and the “recycling” of licenses. He also centralized at DA the issuance of new licenses. “All the legitimate importers will come to the office and I will personally make sure that I will check all import permits that will be issued again,” he was quoted as saying.

Piñol has also taken a stand against rice imports, which President Duterte himself had recently said should be shunned in favor of supporting Filipino rice farmers. DA’s Piñol has also been opposed to the National Food Authority (NFA) plan to negotiate government-to-government purchase of rice from countries like Thailand and Vietnam.

The presidential decision to stop all rice imports, however, does not sit well with economists and trade experts from the Foundation for Economic Freedom or FEF, who said that “stopping all rice importation as... Piñol wants is a dangerous policy that could lead to significant shortages and increased rice prices.”

“The country has never been and is not self-sufficient in rice production. Stopping rice imports... will put upward pressure on rice prices and will lead to significant hikes in rice prices and worsening of hunger and poverty,” FEF said in a press statement.

“Allowing only the [NFA] to import rice is also the wrong policy. The government is a poor judge of the timing of rice imports. Typhoons can hit the country at any time and destroy rice crops. Neither is the government equipped to respond quickly to a rice shortage given the bureaucratic procedures in government. A delay in importing rice will lead to significant spikes in rice prices and make rice more unaffordable to the poor,” it added.

It also raised concern that if NFA would negotiate the government-to-government purchase of rice, then there would be no “competitive bidding.” Thus, “the NFA decisions to buy rice and to contract the logistics to deliver the rice are opaque and can be a source of rampant graft and overprice. Moreover, the NFA will incur more debt to finance the importation.”

The government, FEF added, should “remove the NFA monopoly on rice importation and liberalize the rice trade.” Rather than stopping imports, as Piñol wants, it said the government could instead impose tariffs or import duties, and using the tariff revenues to help rice farmers either to shift production to higher-value crops or to increase productivity.

I support the FEF call, for now, and suggest broadening the recommendation to cover even the importation of sugar substitutes like HFCS and other farm products like fruits and meats. In the case of HFCS and other sweeteners, SRA should be allowed to regulate their importation and to impose tariffs on them, and use the tariff revenues to assist the sugar industry to become more efficient and productive.

As for imported fruits and meats, unless we have sufficient local production, we will need to import additional supplies to keep prices low, and if only to meet the needs of our people. But, all imports can be imposed on tariffs as well, and these tariff revenues can also fund projects relating to enhancing agricultural productivity and efficiency.

Our improved ability and capacity now to import cheaper food from abroad does not mean we should completely abandon local production. Even if self-sufficiency seems far-fetched, we should still target higher efficiency and productivity to achieve some degree of substantial sufficiency, and then match this with importation to meet all our food requirements.

Ultimately, if temporary tariffs now can help the government fund projects that address food production and supply bottlenecks, and local food production eventually becomes more than sufficient to meet the needs of our growing population, then imports will naturally diminish over time. Self-sufficiency may not be the goal, but it can be the future consequence of what we do now.

Marvin A. Tort is a former managing editor of BusinessWorld, and a former chairman of the Philippines Press Council.